Swiss currency still overvalued, says SNB official

The future of the Swiss franc's value and interest rate decisions remain murky for the country's national bank Keystone

The Swiss franc remains “significantly overvalued”, according to a Swiss National Bank official who also says his institution is preparing for possible financial fallout from Britain’s exit from the European Union. 

Fritz Zurbrügg, vice president of the Swiss National Bank (SNB), told the Neue Luzerner Zeitung newspaper on Saturday that most models show that the franc’s value is too high compared with other currencies. 

Until January 2015, the SNB kept the franc pegged to the Euro in order to avoid its overvaluation. Once that peg was removed, the franc’s value skyrocketed. It has since stabilised somewhat, to CHF1.10 per Euro.

In the wake of the un-pegging of the franc, the SNB lowered interest rates into negative territory in an unprecedented move. On Saturday, Zurbrügg did not rule out the possibility that those rates could sink even lower. 

“It’s clear that we re-evaluate the impact of negative interest rates before every monetary policy decision,” he said. “But it is possible that we could reduce the interest rate even further.” 

He also said despite the fact that the SNB had to revise downwards its growth expectations for the Swiss economy, he believes the country’s businesses are doing as well as they can at weathering the storm of the overvalued currency, having “reacted incredibly fast” to the situation. 

“The processing industry has held up relatively well, thanks mainly to the pharmaceutical industry, which has grown well,” Zurbrügg analysed. “Engineering and metal processing companies are still very much under pressure, because they are dependent on the demand for capital goods…and trade and tourism will continue to face big problems.” 

The SNB vice president also said his institution will be keeping a close eye on what happens with Britain’s June 23 vote on whether to leave the European Union, as it could have a significant impact on the value of the Swiss franc. 

“The scenarios surrounding the outcome of the [Brexit] vote have long been an integral part of the situational analyses that form the basis of our monetary policy decisions,” he said.