May 22, 2013 11:54 am

Swiss franc hits lowest level in two years

The Swiss franc hit its weakest level in two years against the euro after the head of Switzerland’s central bank said the country could impose negative interest rates and did not rule out more extreme measures to weaken its currency.

Thomas Jordan, chairman of the Swiss National Bank, told journalists in Frankfurt that the central bank had not ruled out raising its minimum exchange rate from the current 1.20 francs a euro.

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He also said the SNB could charge Swiss banks to hold money with the central bank – a move that would aim to control the country’s overheating housing market by encouraging banks to pass on the costs to mortgage holders.

“Adjusting the minimum rate – just like I said with negative interest rates – [these] are both fundamentally things that are possible, and can be used if necessary,” Mr Jordan told reporters late on Tuesday.

“The franc is a highly valued currency. From an economic perspective, once these fear factors have receded in financial markets, one would expect a weakening of the franc.”

He added he would not comment on when the central bank might choose to use any of the tools at its disposal.

Mr Jordan’s comments were embargoed for publication until Wednesday.

The SNB vowed in 2011 to buy as many euros as required to weaken the franc after heavy inflows from overseas investors seeking a haven during the eurozone crisis.

But Swiss officials have stated that they still believe their currency is too strong and is harming the country’s exporters.

The euro rose 0.9 per cent to touch over SFr1.26, its strongest level since 2011.

Investors and hedge funds had already been selling the franc in recent weeks amid speculation that the SNB could introduce negative interest rates to damp demand for its currency.

The possibility that the central bank would raise its floor to SFr1.25 is considered less likely by many currency investors.

The franc has also weakened in recent weeks along with other typical havens including gold and the Japanese yen as investors have felt more comfortable holding higher risk assets this year.

The SNB’s policy of keeping the franc weak caused the country’s foreign exchange reserves to rocket up in 2012, with the central bank reportedly buying billions of euros a day amid the worst of the eurozone crisis.

The central bank is now sitting on a stockpile of SFr434bn as of April, making it the fifth-largest holder of foreign exchange reserves in the world.

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