SNB warns of 'multitude' of global political uncertainties

[ZURICH] The Swiss National Bank warned of a "multitude" of political risks facing the global economy as it kept its negative deposit rate on hold and reiterated a pledge to intervene in currency markets if needed.

SNB President Thomas Jordan and his colleagues, who have been battling to limit gains in the franc for years, left their deposit rate at minus 0.75 per cent on Thursday, as forecast by all economists in a Bloomberg survey.

"Structural problems in a number of advanced economies - such as a fragile financial system, high public debt and low growth potential - could negatively affect the outlook," Mr Jordan said at a press conference in Bern. "Added to this are a multitude of political uncertainties. First, it is unclear what direction economic policy in the US will take following the presidential election. Second, several countries in the euro area have important elections coming up in 2017. And third, exit negotiations between the UK and the EU are likely to be complex and arduous." Mr Jordan's remarks, just hours after the US Federal Reserve raised its rate and pledged to accelerate further increases, underlines concern among officials on how pressure on the franc can quickly intensify if political risks crystallize. Switzerland borders two European countries facing contentious elections in the next year and is often a haven for currency investors at times of turmoil.

The SNB's warning of potential political storms ahead echoes that of European Central Bank President Mario Draghi, who remarked last week that next year's election calendar "is by itself a source of uncertainty." The SNB will be "taking the overall currency situation into consideration" when discussing interventions, Mr Jordan said.

That may be an indication that the central bank could allow its currency to rise against the euro, according to economists from Zuercher Kantonalbank, Banque Pictet & Cie SA and Bantleon Bank AG.

The SNB "may allow a slight appreciation of the franc against the euro if there is a depreciation against the dollar at the same time," Bantleon's Daniel Hartmann said by e-mail.

As a small, open economy, Switzerland and its currency are greatly affected by changes in interest rates and other forms of stimulus in other jurisdictions. Mr Jordan said last month that a policy normalization, particularly in light of a strengthening global economy, would be in his country's interest.

The Swiss have pursued a two-pillar policy of a negative deposit rate plus a pledge to intervene in currency markets since early 2015, when it unexpectedly announced it would allow the franc to float freely against the euro once again. Foreign exchange reserves have ballooned and stood at a record 648 billion francs (S$910.1 billion) as of late November.

BLOOMBERG