FXStreet (Bali) - Swiss National Bank President Thomas Jordan spoke in an interview with German-language Neue Zuercher Zeitung as well as French Le Temp, noting that the SNB decision to remove the EUR/CHF 1.20 peg had been ‘intensive’ but was unanimous, adding that monitoring of the FX markets will continue, and the SNB will intervene if necessary.
Extracts from the nzz interview
We abandoned the floor. We are still monitoring the FX markets, and will intervene if necessary.
We have been discussing it for quite some time. The diverging development in the main ccy areas lead to a situation where a defense of the floor was not useful anymore and would have only been achievable by massive interventions. This increasingly became clear in the last 2 weeks. If the SNB just had continued its policy by increasing the balance sheet, then it had risked to lose control over monetary conditions in the long run.
As stated before all signals indicate an ever growing divergence in the monetary conditions in the main ccy areas. In these conditions doubts over the credibility and the sense of the floor would have increased.
High interventions are useful as long as they can be justified and sustainable. This was not the case anymore.
The communication of such a decision is a very delicate matter. If we had signaled a potential change to the policy it would have lead to very large very costly speculations against the floor.
I believe the CB is credible if it takes decisions that are necessary for the medium and long term. If we had defended the floor knowing that it is not sustainable we had damaged our credibility. We are aware that this move has painful consequences for many and causes anger. We have to explain now , why it was unavoidable and we had to do it this way.
Practically impossible to do it in steps as market speculation against the CB and against the floor increases - and the floor needs still needs to be abandoned anyway
No, the CHF is our currency. A peg to another currency would not be useful
We were aware that our decision would have far reaching consequences. The markets are very nervous which in turn has lead to more volatility. We consider this an overshoot and it will take some time for markets to stabilize
The SNB has for long time taken this risk on its own balance sheet. We are aware that it gets difficult as this security has now been removed. This is very painful for the companies. But the floor had to be abandoned at some point in time anyway. I hope that they don't overreact now.
The CHF is now very unattractive. It is significantly overvalued and investors face negative interest rates
Negative rates are a very powerful instrument. All monetary policy is driven by change to rates. It's new that rates can be pushed to negative territory. Our decision makes holding the CHF vs EUR or USD much more expensive. The negative rates will have a strong effect over time. Every investor will have to decide if the high cost of carry will justify holding CHF or if it is not better to invest in a different ccy.
We currently observe a massive overvaluation of the CHF against all ccy's. The market will realize that this valuation is not justified.
We are watching the FX. Market closely and if necessary be active in it. We don't have the floor anymore but watch the overall situation
Ivan Delgado - http://www.fxstreet.com/news/forex-news/article.aspx?storyid=68f90d91-f391-435b-826c-bcc8a785257a
Extracts from the nzz interview
We abandoned the floor. We are still monitoring the FX markets, and will intervene if necessary.
We have been discussing it for quite some time. The diverging development in the main ccy areas lead to a situation where a defense of the floor was not useful anymore and would have only been achievable by massive interventions. This increasingly became clear in the last 2 weeks. If the SNB just had continued its policy by increasing the balance sheet, then it had risked to lose control over monetary conditions in the long run.
As stated before all signals indicate an ever growing divergence in the monetary conditions in the main ccy areas. In these conditions doubts over the credibility and the sense of the floor would have increased.
High interventions are useful as long as they can be justified and sustainable. This was not the case anymore.
The communication of such a decision is a very delicate matter. If we had signaled a potential change to the policy it would have lead to very large very costly speculations against the floor.
I believe the CB is credible if it takes decisions that are necessary for the medium and long term. If we had defended the floor knowing that it is not sustainable we had damaged our credibility. We are aware that this move has painful consequences for many and causes anger. We have to explain now , why it was unavoidable and we had to do it this way.
Practically impossible to do it in steps as market speculation against the CB and against the floor increases - and the floor needs still needs to be abandoned anyway
No, the CHF is our currency. A peg to another currency would not be useful
We were aware that our decision would have far reaching consequences. The markets are very nervous which in turn has lead to more volatility. We consider this an overshoot and it will take some time for markets to stabilize
The SNB has for long time taken this risk on its own balance sheet. We are aware that it gets difficult as this security has now been removed. This is very painful for the companies. But the floor had to be abandoned at some point in time anyway. I hope that they don't overreact now.
The CHF is now very unattractive. It is significantly overvalued and investors face negative interest rates
Negative rates are a very powerful instrument. All monetary policy is driven by change to rates. It's new that rates can be pushed to negative territory. Our decision makes holding the CHF vs EUR or USD much more expensive. The negative rates will have a strong effect over time. Every investor will have to decide if the high cost of carry will justify holding CHF or if it is not better to invest in a different ccy.
We currently observe a massive overvaluation of the CHF against all ccy's. The market will realize that this valuation is not justified.
We are watching the FX. Market closely and if necessary be active in it. We don't have the floor anymore but watch the overall situation
Ivan Delgado - http://www.fxstreet.com/news/forex-news/article.aspx?storyid=68f90d91-f391-435b-826c-bcc8a785257a
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