Swiss central bank says no to currency floor, maybe to rate cuts

Switzerland's central bank was not ruling out taking interest rates further into negative territory this week, as concerns about fresh volatility in the Eurozone had many worried the franc could move even higher.

The SNB initially introduced negative interest rates last year, in a bid to reduce the draw of the franc as a safe haven investment.

At the time, the bank also abandoned its currency floor of CHF 1.20 per euro due to mounting pressures, which sent the franc flying and seriously damaged the landlocked country's exports.

The abandonment of the floor also led to a CHF 23bn loss for the SNB, the largest in its history, as the value of its foreign currency holdings vanished.

"We have already gone quite far with negative interest rates and now we are observing the situation closely," SNB chairman Thomas Jordan was reported as saying to Swiss business magazine Bilanz, in an interview to be published on Friday.

"We are ruling nothing out," he added.

Jordan said the country's monetary policy was still centred around relieving pressures on the franc.

"That's why we have negative interest rates, and we are ready to intervene in the currency markets," he explained.

Jordan believed the franc, while weakened, was still overvalued, and he was fearful that disturbances in Europe could bring the currency centre stage once more.

"The national bank can't give a guarantee. We got out of the minimum exchange rate because it was no longer sustainable," Jordan said.

He ruled out another currency floor, saying: "It makes no sense to have such a rigid concept again".

Many anaylsts believed the SNB had already been tinkering in the markets this year, with some estimates it had bought up CHF 8.5bn in a bid to weaken the the franc. Numbers for January show the bank's foreign reserves were up to CHF 575bn in January, a record high.

The Swiss franc had weakened slightly against the euro on Thursday, slipping back 0.3% to trade at CHF 1.10250 against the common currency.