07/09/2011
By Matt Ritchie
The Swiss National Bank (SNB) has moved to peg the franc to a minimum exchange rate of CHF 1.20 per euro, in order to stem the currency’s appreciation.
In a statement issued yesterday, the SNB said the current “massive overvaluation” of the Swiss franc poses an acute threat to the economy and carries the risk of a deflationary development.
The SNB cautioned that the currency value remains high even at a rate of CHF 1.20 per euro, and the bank is prepared to take further measures should the economic outlook and deflationary risk so require.
“The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities,” it said.
Reacting to the move, head of global strategy and asset allocation at Aberdeen Asset Management Mike Turner said the intervention would help support the euro's value when really the currency should be depreciating, which would aid the “anaemic” growth rate in the EU periphery.
“What we are witnessing though is more unilateral action to tackle the growing sense of crisis across Europe. What we need is coordinated action to solve the mess and we are just not getting that from politicians, or indeed central banks. There is absolutely no sign of effective coordinated policy making. I don't see this ending prettily and SNB efforts are just a sideshow related to their own domestic situation,” Turner said.
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