Swiss National Bank: Franc 'significantly overvalued'

A man looks at a board showing currency exchange rates in Bern January 15, 2015.
Thomas Hodel | Reuters

The Swiss National Bank (SNB) decided to keep its main interest rate at -0.75 percent on Thursday, saying that the Swiss franc was still "significantly overvalued."

The bank adopted negative interest rates last December in a bid to deter investors from depositing their money in the country's banks which in turn causes the Swiss franc to fall.

In its latest monetary policy assessment published on Thursday, the bank said: "Overall, the Swiss franc is still significantly overvalued, despite a slight depreciation."

"The negative interest rates in Switzerland and the SNB's willingness to intervene as required in the foreign exchange market make investments in Swiss francs less attractive; both of these factors serve to ease the pressure on the franc," it said.

Earlier in September, the currency weakened past the psychologically important 1.10 level against the euro - the lowest level since the bank' s surprise removal of the minimum exchange rate of 1.20 francs per euro at the beginning of the year, which caused the currency to soar 30 percent against the euro.

After the decision on Thursday, the Swiss franc was trading at 1.0954 against the single currency.

Some analyst believe the Swiss franc's status as a safe-haven is gradually eroding, however, and analysts at Unicredit said recently that "there is plenty of room left for the Swiss franc to depreciate further.

The sharp rise in the currency and the pressure that put on Swiss exports, which were rendered more expensive, has put pressure on the economy, the Swiss government said on Thursday as it forecast "below-average" economic growth this year and next.

Gross domestic product (GDP) will expand 0.9 percent in 2015 and 1.5 per cent in 2016, the State Secretariat for Economic Affairs (SECO) in Bern.

In a statement, SECO said "the sharp rise in the value of the Swiss franc from mid-January put a significant brake on the Swiss economy during the first half of 2015."

"Despite a slight easing in the exchange rate situation over the last few weeks the Expert Group continues to anticipate that the economy will remain very subdued in the second half of the year and is likely to only start to strengthen again during the course of 2016."

It said a key prerequisite for an improvement in the economic situation is that the global economy remains on an upward course and, in particular, that the euro zone is able to continue its recovery.