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Stronger franc, weaker growth

March 19, 2015

Switzerland's central bank has revised down the nation's growth forecast. The national currency has soared in value, making exports expensive, following the scrapping of the franc's cap against the euro in January.

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Schweiz Frank Banknoten
Image: Reuters/K. Pempel

The Swiss National Bank (SNB) on Thursday announced it had slashed its growth forecast for 2015 to just under 1 percent, down from a previous prediction of 2 percent.

The lender said the strong franc had been behind its decision to halve its growth forecast for this year. The national currency had strengthened by as much as 30 percent after the SNB's surprise move in January to throw overboard its 1.20-franc cap against the euro.

On Thursday, the franc traded at 1.05 against the single currency, pointing to the current plight of exporters in the country who had seen their output hurt by the strong national currency.

Staying the course

SNB chief Thomas Jordan insisted, though, that there had been no sound alternative to scrapping the cap.

Keeping the tool in place "would have saddled the Swiss economy with longer-term costs that would have been out of all proportion to the benefits of continuing to enforce the minimum exchange rate," Jordan said in a statement.

He acknowledged that excess production capacity and unemployment were bound to "rise moderately" in the months ahead.

The central bank said there would be no change to its benchmark financing rates, meaning its interest rate on immediately transferable deposits would remain at minus 0.75 percent.

hg/ng (AFP, Reuters)