The trials and tribulations of the Swiss may seem piffling compared with the woes of their eurozone neighbours.
But the franc’s strength, coupled with weak global demand, is hurting the country’s businesses. This from the FT’s Haig Simonian:
Exporters, hoteliers and retailers have howled as the strong currency has hurt sales. Hotel booking have plunged and look set to drop further in the winter season as foreign tourists stay away. Retailers have seen shoppers defecting across the border and exporters say they have retained market share only by slashing margins or even selling at a loss.
The Swiss National Bank’s decision to keep the floor on the franc’s appreciation against the euro constant at Sfr1.20 today will have no doubt disappointed them. Especially when there were many reasons for the central bank to act.
The SNB has instead favoured a wait-and-see approach, hoping that the eurozone turmoil doesn’t worsen and that the franc’s depreciation against the single currency continues of its own accord.
But the central bank suggested that, if the franc does not weaken further against the euro in the coming months, then it is likely to act.
The Swiss National Bank’s forays into the foreign exchange markets have – along with the appreciation of the franc – led to spectacular losses, which in turn have provoked the ire of some of the country’s politicians.
One of the reasons why is that the central bank has traditionally paid out Sfr2.5bn each year to the Swiss confederation and the country’s cantons, which own the majority of the SNB.
The losses have thrown that into doubt. With the central bank announcing a paper loss of Sfr10.8bn for the first half of 2011, will it pay out? The message from Thomas Jordan, the SNB’s vice chair, today: don’t count on it.