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Swiss National Bank's Zurbruegg says franc rise justifies loose policy

[ZURICH] The Swiss franc's surge in the wake of Turkish economic upheaval justifies the Swiss National Bank's ultra-loose monetary stance, SNB vice chairman Fritz Zurbruegg said on Wednesday.

The Swiss franc has appreciated to its highest level this year against the euro as safe-haven flows channelled into the currency amid rising political and economic risks in Europe.

"The developments in recent days have shown that the currency markets remain fragile, and can lead to safe-haven flows into the Swiss franc," Mr Zurbruegg said at an event in Zurich to unveil the central bank's new 200 franc note.

The situation meant the central bank's policy of charging negative interest rates and intervening on currency markets when needed remained necessary, Mr Zurbruegg said.

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Concerns that Turkey's economic troubles could infect European banks and fears that Italy's upcoming budget could destabilise its finances and threaten its membership of the euro have weakened the single currency.

As a result the franc has gained nearly 4 per cent in the last month to breach the 1.13 level versus the euro, a long way from the 1.20 level it briefly weakened to in April.

This could prompt the SNB to become more vocal in talking down the franc, changing its description of the currency from "highly valued" back to "significantly overvalued" when it gives its next monetary assessment on Sept 20.

Analysts reckon the franc's rise - which threatens Switzerland's export-reliant economy by making the country's products more expensive - would boost chances of the SNB's relaunching currency market interventions which analysts say it has paused since July 2017.

"Before all this came along, we thought the franc would remain around the 1.15 area, and would have expected it to weaken slowly next year after the European Central Bank starts to normalise its policy," said Antje Praefcke, a currency analyst at Commerzbank.

"However, now if the franc was to drop much further to the 1.10 level the SNB is going to get more nervous and might intervene in the market," she said. "I think they are a bit more nervous than before."

Maxime Botteron, an analyst at Credit Suisse, also said the probability of SNB interventions would rise if the currency reached the 1.10 level.

But Peter Rosenstreich, a currency strategist at Swissquote Bank, thought the SNB would instead wait for the franc to weaken before embarking on currency interventions to add momentum to its devaluation.

"The SNB prides itself on its currency toolbox, but it would be remiss to try to get in front of this little tsunami," he said.

By waiting for the franc to weaken the SNB "would have the market on their side, and a little money in the market would go a long way rather than fighting buyers," he said.

REUTERS