SNB’s Jordan Says Further Rate Cuts Depend on Global Environment

(Bloomberg) -- Further interest rate cuts by the Swiss National Bank will depend on global situation, its President Thomas Jordan said.

“Whether we need to go lower with the negative rates depends on international developments,” Jordan said in a discussion with members of the Swiss public, according to the transcript published by Schweiz am Sonntag.

In a stunning move, the central bank abolished its three- year-old cap on the franc of 1.20 per euro in January and instead cut its deposit rate to minus 75 basis points. The franc soared against the euro following that decision, and the pace of economic growth is set to slow this year.

“At minus 0.75 percent we’ve already gone quite far and we’re waiting to assess the effect,” Jordan said. Europe and the U.S. have probably reached the lower bound of interest rates and will raise them again over time, he said.

In the first quarter, when the franc rallied 15 percent against the euro, Switzerland’s economy contracted the most in six years as the unfavorable exchange rate took its toll on exports.

The SNB predicts the economy will expand “just under” 1 percent in 2015, half what was forecast when the cap of 1.20 per euro on the franc was still in place. It will publish updated growth and inflation forecasts at its next policy review on June 18.

“The franc is significantly overvalued,” Jordan said. “Also, we’ve stressed that we’ll get active on foreign exchange markets, if necessary.”