SNB’s main scenario is for Greece to remain in euro, Jordan says

Swiss National Bank President Thomas Jordan said he doesn’t expect Greece to leave the euro area and warned of risks associated with such a move.

“It’s not in our base scenario,” he told Swiss television SRF in an interview today. “But you shouldn’t underestimate the risks, should there be an exit, both for the euro area and especially for Greece itself.”

The interview is Jordan’s first since the SNB announced on Dec. 18 that it would impose a negative deposit rate to stave off capital inflows and reinforce its three-year-old minimum exchange rate of 1.20 per euro. The franc hit its strongest since 2012 last month amid a weakening of the Russian economy and the prospect of more euro-area stimulus by the European Central Bank.

The SNB, based in Bern and Zurich, also cut its target range for three-month franc Libor and resumed purchases of foreign currencies.

In response to whether the SNB had effectively signaled it could no longer wage unlimited interventions after implementing the negative rate, Jordan said: “Yes, we still can — the cap is absolutely central for maintaining the adequate, correct monetary conditions for Switzerland.”

In charging commercial banks for their sight deposits starting from Jan. 22, the SNB is following in the footsteps of the ECB and central banks of some smaller European economies. The Frankfurt-based institution led by Mario Draghi enacted a negative rate in June to boost prices, followed by Sweden’s Riksbank in July. Denmark, which enjoys a similar haven status as Switzerland, cut its rate back below zero in September.

Bond Purchases

Any decision by the ECB to start large-scale sovereign-bond purchases would benefit Switzerland because it would support the euro-area economy, its biggest destination for exports. Still, “these measures can affect the euro exchange rate, and that could be difficult” for the country, Jordan said.

The SNB forecasts Swiss economic growth of about 2 percent this year, with consumer prices falling 0.1 percent. It sees inflation accelerating slightly to 0.3 percent in 2016.

“We’re not in a real deflation,” even though “risks have increased markedly,” Jordan said. “An appreciation of the franc would necessarily lead to more negative inflation or even deflation.”