Swiss National Bank Pledges Unlimited Currency PurchasesBy Klaus WilleBloomberg Sep. 06, 2011 |
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The Swiss central bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.” The Swiss National Bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an e-mailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.” The franc snapped four days of gains versus the euro, declining as much as 8.7 percent after the SNB announced the measure last used in 1978. While the central bank last month boosted liquidity to the money market and lowered borrowing costs to zero to protect the economy, investor concern that governments may struggle to contain Europe’s worsening debt crisis had continued to push the currency higher. “The SNB has committed itself to creating unlimited amounts of francs and selling them versus the euro to defend the currency’s level,” said Fabian Heller, an economist at Credit Suisse Group AG in Zurich. “They will follow through on their commitment as otherwise their credibility would be clearly damaged and speculation would start again, most likely leading to renewed franc gains.” The franc had the biggest drop since the single currency was introduced in 1999. It traded at 1.2036 at 3:11 p.m. in Zurich and was at 85.59 centimes versus the dollar. Read More |