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But this announcement, unexpectedly resulted in a sharp move up the value of the Swiss franc against the euro and the stock market to plunge Swiss.
- Why the floor rate had it been in place?
“floor price” was to to limit the appreciation of the Swiss franc: that is to say that the Swiss authorities that can be tolerated with CHF 1.20 buy 1 euro, but not that one can buy 1 euro with 1.15 franc .
The higher the value of the Swiss franc against the euro lower, more, in fact, the value of the Swiss franc increases: it takes fewer Swiss francs to buy a euro
This price was set in September 2011, at the height of the sovereign debt crisis in the eurozone, the Swiss franc serving as a safe haven.
In practice, the central bank had buy in bulk foreign exchange to contain its own currency.
Also read our decryption on the floor during the mechanism
- Why the floor rate is it removed now?
“We studied our balance sheet and came to the conclusion that the time to end the floor rate arrived now and not in six months or a year , “said Thursday afternoon, Thomas Jordan, Chairman of the Governing Board of the SNB.
Earlier, in a statement, the SNB indicated that “the franc certainly remains at a high level, but since the introduction of the minimum exchange rate, its overvaluation is generally attenuated” . She also mentioned the sharp weakening of the euro against the dollar.
In December, faced with shocks in the money markets related to the fall of the ruble, the SNB had already been forced to re adjustment by imposing a negative deposit rate that banks perform with her.
Recently, speculative pressures were accentuated on the floor the Swiss franc. Even after the announcement of the introduction of negative interest rates in December 2014, just after Christmas, the paper recalls Time.
According to Christopher Dembik, economist at Saxo Bank, “we can clearly understand the decision of Switzerland as a preventive action just before the ECB launched its sovereign debt buyback program on January 22, which goes one step further dilute the value of the euro and defeat its monetary policy “.
- The Swiss franc and the stock market fall fly
Thomas Jordan admitted that the decision could be “momentarily painful”
As soon as the announcement, the Swiss Stock Exchange was down: 12: 30 local, the index SMI 20 blue chips lost 12.04%, showing 8 093.81 points.
“Nobody expected to abandon the course without prior warning floor” reports Christopher Dembik.
“The Swiss National Bank shocked investors” adds Connor Campbell, an analyst at Spreadex, noting that the immediate reaction was “explosive” .
In fact, the reaction to the decision of the SNB was quick on the foreign exchange market. The Swiss franc has appreciated sharply against the euro, it worth just over 1.1608 franc to 11 h 05, against about 1.20 francs just before the announcement of the SNB.
Just before 11 am, the Swiss currency even reached 0.8517 Swiss francs per euro, a record high since the Swiss currency had never crossed the parity threshold of one euro for a free Switzerland since the introduction of the single currency in 1999.
The announcement of the SNB raised panic in Poland, where some 700 000 households hold mortgages in Swiss currency, the zloty winning nearly 20% against the Swiss franc. The Warsaw Stock Exchange fell Thursday around 2% by mid-day.
- The Swiss companies exporting evoke a “tsunami”
Another consequence in the space of a few moments, the Swiss export products have become 30% more expensive, due to the abandonment of the floor rate
The Swiss exporting companies risk. So to have difficulty in selling their products abroad.
“What causes the SNB there is a tsunami” , said at the ATS agency, Nick Hayek, CEO of Swatch Group, the world leader in watchmaking, believing that this will implications for “the export industry, tourism, but also for the whole of Switzerland “
” It is not possible that our SMEs. – the backbone of our economy – so be abandoned “, reacted Swissmechanic, organization employer of the machinery industry. Over 80% of SMEs export their production, mainly to the EU and especially in Germany.
The Swiss bank UBS estimates that exports will decrease by 5 billion Swiss francs and growth of the Swiss economy should be amputated by 0.7 percentage point
However, for the thousands of border working in Switzerland, the effect is positive. They are the big winners indirect of operation, since their income grew by 30%.
- How Swiss-will it lessen the impact of his decision?
For this deletion does not lead to inappropriate tightening of monetary conditions, the SNB has significantly lowered interest rates on deposits by banks with her.
She already introduced in late 2014, a negative rate on bank deposits beyond a certain threshold – a first since 1970 – to make these deposits deterrent and push banks to invest this money. Thursday, the SNB announced that the rate increased to -0.75% against -. 0.25%
In the future, it will continue to take into account the situation on the foreign exchange market to define its policy.
“This probably means that it is considering either foreign exchange management on a currency, but on a basket of currencies. This solution was recently raised by the Federal Council “, notes the economist and financial analyst François Savary.
Why not having announced in stride? “It must first of the foreign exchange market is stabilizing,” says Mr. Savary.
The economic analysis firm in London Capital Economics estimates that the SNB “will soon be forced to intervene to prevent rapid appreciation of the Swiss franc vis-à-vis the euro” .
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