SNB's cap exit a challenge for exporters, Swiss government says

[ZURICH] The Swiss National Bank's decision to give up its cap on the franc hands constitutes a particular challenge for the export and tourism sector, the government said.

The Swiss central bank stunned markets yesterday by abolishing its three year-old cap of 1.20 per euro, causing the franc to soar against the the common currency.

"The government's economic committee trusts the central bank will guarantee price stability while taking economic developments into account," it said in a statement. The cap was a "good, though always temporary instrument," that gave companies the ability to plan ahead, according to the government.

The European Union is Switzerland's biggest trading partner, and for years Swiss manufacturers and the tourism sector have struggled to retain business in the face of an unfavorable exchange rate. The SNB set the currency cap in September 2011 after the franc nearly touched parity with the euro, threatening to choke off exports.

Hotel and restaurant managers, particularly in ski resorts, have complained of a decline in guests in recent years as European vacationers opted for less expensive destinations in neighboring France, Italy and Austria.

The SNB's mandate is for keeping inflation positive yet below 2 per cent.

The Swiss government is made up of five parties, including the Social Democrats, or SP, and the European Union-skeptic Swiss People's Party, SVP. They differed in their reactions to yesterday's news.

"The SNB is playing with fire," the SP said in an e- mailed statement, adding that Switzerland is at risk of "catastrophic consequences for the economy and jobs." By contrast, Thomas Matter, Chairman of Neue Helvetische Bank AG and SVP member of parliament, called the exit "a very courageous decision," Neue Zuercher Zeitung reported.

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