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Says it's better to be criticised than risk credibility
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SNB forced to act by diverging monetary policies
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SNB risked losing control of long-term monetary policy (Adds
quotes, background, detail)
By Tom Miles
GENEVA, Jan 16 (Reuters) - Reaction to the
Swiss National Bank's scrapping of its cap on the value of the Swiss franc has
been overdone, the bank's President Thomas Jordan said in a newspaper interview
on Friday.
"We see significant excesses in current
exchange rates," he told Le Temps and Neue Zuercher Zeitung, adding that
the bank had been aware that its shock move could have a major impact, and it
could take some time for markets to find equilibrium.
The SNB had capped the value of the franc at
1.20 to the euro in Sept. 2011 to stop the Swiss economy being unbalanced by
funds seeking shelter from the global financial crisis.
But the policy became a virtual peg of the
franc's value to that of the ever-weakening euro. The European Central Bank may
announce moves to further weaken the euro next week, which would have compelled
the SNB to buy up more euros to keep the franc weakening at the same pace.
Jordan said that the SNB had become persuaded
over the past few days that increasingly divergent monetary policies would make
it impossible to continue with the franc cap.
"Intervention can be justified by the
economic interests that need to be defended. If the goal is no longer
sustainable and justified, we cannot continue. That's the point we
reached."
The conditions for abandoning the cap had been
discussed for a long time. One was if diverging monetary policies required
increased interventions to support the cap, which had happened over the past
two weeks, Jordan said.
"If the SNB had continued with its
policy, it risked losing control of long-term monetary policy."
He said he had been aware that the sudden move
would put Switzerland's economy in a more difficult position.
"But it's important that the economy does
not over-react and analyses the new situation in an in-depth way. You have to
remember that the cap had been an exceptional and temporary measure since the
start. It was going to have to be abandoned at some point."
Continuing with an unsustainable defence of
the cap would have put the bank's credibility into question, so it was better
to take the criticism that he was now hearing, Jordan said.
His deputy Jean-Pierre Danthine has also been
under fire, having reiterated the SNB's staunch support for the policy in a
television interview about 60 hours before it was scrapped.
"In a case like this, the communication
cannot be changed before the decision is made public," Jordan said.
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