FRANKFURT (MNI) – The Swiss National Bank will counter an excessive
appreciation of the Swiss Franc against the euro, which may come under
more pressure due to the Eurozone’s sovereign debt crisis, SNB board
member Thomas Jordan said Thursday.

The SNB is walking tightrope, trying to avert a fresh downturn amid
the Eurozone’s sovereign debt crisis while assuring price stability over
the longer term, Jordan said in the text of a speech issued in advance.

“The debt crisis could lead to a destabilization of the euro and
with that there is additional upward pressure on the Swiss franc,” he
said.

“The National bank will — again with a view to the importance of
maintaining price stability — not allow deflationary risks for
Switzerland to become too large via such developments,” he reiterated.

“Therefore, it will decisively counter an excessive appreciation of
the franc,” he asserted.

Jordan warned that “an escalating debt crisis could still strongly
weigh on the growth outlook of the Eurozone for a longer time” with
negative impact on Switzerland.

The close economic interaction between the EU and Switzerland could
mean that EU’s debt crisis could have negative consequences on the Swiss
economy, he said. “Demand for Swiss exports would be particularly
burdened.”

“In addition to the dangers in reference to price stability, the
exchange rate and economic trends, the spreading of the debt crisis in
the current fragile situation could lead to a renewed destabilization of
the whole financial system,” Jordan warned.

“The spillover of the Greek problem to other member states and with
that an accompanying feedback effect on the financial sector are not
completely ruled out,” he said.

While these dangers argue for ongoing lose monetary policy, the
economic recovery — with 1.5% GDP growth projected for 2010 — as well
as extra liquidity pumped into the system via repos and bond buys oblige
the central to pay a close eye on inflation risks, Jordan said.

“With a view toward price stability, the current monetary policy
path [in Switzerland] cannot be continued without end. To counteract
this medium-term danger, liquidity must again be mopped up in a timely
manner. Otherwise various negative effects of higher inflation rates
loom,” he said.

Jordan said that whatever policies are pursued, the SNB will always
strive to fulfill its primary mandate of ensuring price stability.

“Only when the goal of price stability is pursued over the long
term, can a central bank be in a position to react flexibly in the short
term. Therefore, it is absolutely central that the accumulated
credibility of the national bank not be endangered by short-term
considerations.”

–Frankfurt bureau tel.: +49-69 720142. Email: frankfurt@marketnews.com

[TOPICS: M$$CR$,MGX$$$,MT$$$$,M$$EC$,M$X$$$,M$$FX$]