Switzerland surprised markets by eliminating exchange rate of 1.20 Swiss francs per euro and hardened to -0.75% interest rates in order to protect its artificial currency revaluations, but assumes an unexpected action that can affect the single currency.
In an environment of global weakness, particularly in the old continent, the depreciation of the euro against the dollar and the sharp drop in the price of oil, Swiss National Bank (SNB for its acronym in English) decided to leave the minimum exchange rate of 1.20 Swiss francs per euro.
In September 2011, amid the euro crisis and the strong influx of that currency into Swiss banks the minimum exchange rate for the purchase of euro was introduced, thereby seeking moderate overvaluation was meaning for the Swiss currency. Handled as an exceptional and temporary measure to protect the Swiss economy, now the depreciation of the euro against the dollar also drag the Swiss franc, such a mechanism is unnecessary.
The decision to eliminate the exchange rate Minimum went hand in hand with the reduction of the reference rate of the Central Bank of -0.25 to -0.75% next January 22. Unlimited trade CHF increased the amount of that currency in circulation, a situation that distorted the market for Swiss money, so with negative interest rates is to discourage the entry of deposits in foreign currencies, even more so with the imminent injection liquidity by the European Central Bank.
The SNB said that the discrepancies between the monetary policies of the major areas have increased considerably. The euro has depreciated against the US dollar causing the Swiss franc also weakened, which is why the Swiss Central Bank concluded that the implementation and maintenance of the minimum exchange rate is no longer justified; This position also cease purchases of foreign currency.
In the words of Thomas Jordan, president of the central bank, reducing the interest rate becomes less attractive investments in Swiss francs, besides which offset the effect of the decision to suspend the minimum exchange rate.
The inflation outlook for Switzerland are low. Last December the central bank forecast that consumer prices 0.1% would plummet this year, the forecast is pronounced more by falling oil prices, although this dynamic stimulate growth globally and at the same time, influence positively on economic developments in Switzerland.
One of the most concerned sectors is exporting. Foreign sales of Switzerland to the euro area represent 46.5% of the total, so now they will receive less cash flow. Tourism also be affected by this measure.
rodrigo.rosales@eleconomista.mx
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