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2011-09-06 11:06:47
The Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs to
the euro, saying the current value of the franc is a threat to the economy.
The SNB said it would enforce the minimum rate by buying foreign currency in
unlimited quantities.
The move had an immediate effect, with the euro rising from about 1.10 francs
before the announcement to 1.21 francs.
It is the latest attempt by the central bank to weaken its currency, which has
been at export-damaging record highs.
The SNB has previously said that it would increase available deposits to
commercial banks, as well as cut interest rates.
The Swiss government has also said it would increase its spending by 2bn francs
to help boost the domestic economy.
'Utmost determination'
In a statement, the SNB said: "The current massive overvaluation of the Swiss
franc poses an acute threat to the Swiss economy and carries the risk of a
deflationary development.
"The Swiss National Bank is therefore aiming for a substantial and sustained
weakening of the Swiss franc. With immediate effect, it will no longer tolerate
a EUR/CHF exchange rate below the minimum rate of CHF 1.20.
"The SNB will enforce this minimum rate with the utmost determination and is
prepared to buy foreign currency in unlimited quantities."
The Swiss stock market, the Zurich SMI, rose 4% after the announcement, with
exporters the biggest risers.
'Grand scale'
The European Central Bank issued a short statement saying the decision had been
taken by the Swiss National Bank "under its own responsibility".
Jeremy Cook, chief economist at World First, said the resulting currency
movement was "the single largest foreign exchange move I have ever seen".
Against the franc, the euro climbed 9%, the dollar rose 7.7% and sterling
gained 7.8% within minutes of the announcment.
"This dwarfs moves seen post-Lehman Brothers, 7/7, and other major geopolitical
events in the past decade," Mr Cook said.
"The Swiss have had enough. This is intervention on a grand scale.
"This turns up the heat on the eurozone and other economies who have benefited
from weakening their currency in the past couple of years."