Comment: SNB - determined but showing weakness in armour

Acting head of the Swiss National Bank Thomas Jordan once again reiterates the central banks determination to defend the 1.20 floor on EUR/CHF.

This determination to keep EUR/CHF above 1.20 is something that will happen at all times from the Asia open to US close. The focus on economic weakness and deflation risks related to the 1.20 floor is understandable but what does also come across is weakness in the SNB’s Armour.

This weakness stems from the concern SNB’s Jordan expresses with regards to “imbalances in the domestic credit and real estate market”. But even here Jordan says that “due to the exceptional monetary policy situation, rates cannot readily be increased to address these threats”. The time will come when the threats outlined by Jordan will become significant enough a risk that they cannot be ignored and monetary policy cannot continue to focus on keeping EUR/CHF above 1.20.

The longer the eurozone crisis lingers the more pressure there will be on EUR/USD and for Greece to exit which in turn means the greater are the safe haven flows into the CHF. This means the SNB will have to do more to counter this CHF strength via the creation of liquidity and thus take risks with a credit/housing bubble. For now the risks are seen as a threat to keep an eye on but this could change and when it does the intervention threat will be less credible.