20 February 2019
The franc is now trading near parity with the euro. Photo: Reuters
The franc is now trading near parity with the euro. Photo: Reuters

Swiss officials say economy can survive freeing of franc

Swiss officials tried to reassure the country that the scrapping of the cap on the franc against the euro will not destabilize the economy, Reuters reported.

The central bank’s shock decision came a week before the European Central Bank is expected to announce a massive bond-buying program.

Finance Minister Eveline Widmer-Schlumpf said Sunday she expects the exchange rate to settle down at about 1.10 franc per euro, a level she said firms in the export-reliant country should be able to withstand.

“I’m confident that the economy will be able to cope with this decision. Companies are in a far better position than in 2011, when the cap was introduced,” she told the SonntagsBlick and Schweiz am Sonntag newspapers.

The Swiss National Bank (SNB) stunned markets Thursday when it abandoned its cap on the franc of 1.20 per euro, saying the policy had become unsustainable.

The move sent the franc soaring, prompting firms across Switzerland to warn of a plunge in profits, with the luxury, industrial and tourism sectors most exposed.

Hans Hess, president of Swissmem, which represents companies in the machinery, electronic, and metalworking sectors, told the NZZ am Sonntag paper one in five Swiss industrial firms faced an “existential threat”.

“The abolition of the cap will cost jobs, but the sector overcame the franc crisis in 2011 and will also cope with this crisis,” he said.

The franc broke past parity following the SNB’s announcement, strengthening to 0.85 francs per euro before trimming gains. On Friday it was trading at a whisker below parity with the euro.

The ECB is expected to launch a government bond-buying program Thursday to revive the European economy and combat deflation, the report said.

If the ECB exceeds market expectations, investors may pile into the safe-haven franc, putting the SNB under more pressure to act.

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