SNB’s Martin Doesn’t See Mideast War, US Vote Pressuring Franc

(Bloomberg) — The Swiss National Bank doesn’t see increased pressure on the franc from the conflict in the Middle East and the US elections, according to Vice President Antoine Martin.

While the currency’s role as a safe haven can lead it to strengthen during periods of tension, “nothing today allows us to think that certain shocks will necessarily happen,” he told Swiss newspaper Le Temps in an interview published Monday.

Lower inflation rates in Switzerland than in other countries mean the franc is expected to rise structurally in nominal terms over time, Martin said. Excluding the impact of price rises, the increase has been limited, however, he added.

The franc has been on an upward trend since May, which has contributed to a slowdown in inflation by making imported goods cheaper. Last month, the gauge dropped to 0.6%, prompting some economists to say it might undershoot the SNB’s 0-2% target.

The central bank reduced borrowing costs at its last three meetings and is expected to do so again twice more, bringing its key interest rate to 0.5% by March. SNB President Martin Schlegel has fueled such expectations by repeatedly saying further cuts may become necessary to ensure price stability.

Vice President Martin told Le Temps the SNB’s forecasts suggest inflation will remain within the preferred range. 

He also echoed earlier statements that the SNB may buy foreign currencies to keep the franc’s surge at bay. With one of the world’s lowest interest rates, doing so could help officials to strike a balance between low inflation and limited space to ease monetary policy.

“The development of the Swiss franc this year has been neither particularly surprising nor exceptionally problematic,” Martin said.

Foreign-exchange interventions are a key policy tool of the central bank as monetary conditions in Switzerland are significantly influenced by the franc’s exchange rate.

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