ZURICH, March 3 (Reuters) - The Swiss National Bank sees increasing political risks around the world but has the tools it needs to deal with their potential impact on the “significantly overvalued” Swiss franc, Chairman Thomas Jordan told newspaper Schweiz am Wochenende.
Important votes are taking place in France and Germany, while the situation in Italy and Britain after its vote to leave the European Union remained unclear, Jordan said in an interview to be published on Saturday.
“Such periods of raised uncertainty are always sensitive for us because Switzerland is increasingly seen as a safe haven,” Jordan said.
The bank would be able to deal with potentially destabilising effects such as the potential election of Marine Le Pen in France’s presidential vote, he said.
“We have with our tools enough leeway to react to further shocks,” Jordan said.
The SNB has significantly stepped up its currency interventions in recent weeks to stem the rising value of the franc versus the euro this year.
The Swiss currency is hovering close to the level of the Brexit vote in June, when the SNB broke with convention by announcing it was intervening in currency markets.
A strong currency poses risks to the Swiss economy because it makes the country’s exports more expensive.
Jordan said that although the world economy had improved, it was not the time to think of abandoning negative interest rates - the second pillar of the SNB’s strategy to rein in the franc.
”Our monetary policy remains expansive,“ he said. ”Inflation remains very low, there is still spare production capacity in Switzerland and the franc is significantly overvalued.
“In the current situation negative interest rates and the readiness to intervene remain the appropriate instruments,” he said. “Currently we see no reason to adjust our monetary policy.”
As a result of the SNB’s foreign currency purchases, its balance sheet has expanded to more than 725 billion francs ($716.47 billion), larger than the size of the Swiss economy, raising concerns it could swing between big profits and losses in the future.
Jordan said criticism should not deter the bank from acting, although it was important to explain its policy to the public.
He said the SNB was not intervening to weaken the franc to gain an unfair advantage for Swiss exporters. Switzerland has appeared on a U.S. Treasury watchlist and could be branded a currency manipulator.
“We have to intervene to protect Switzerland from the clear overvaluation of the franc and its negative consequences for the economy,” Jordan said.
“This is recognised in our regular exchanges with foreign authorities and international organisations.”
$1 = 1.0119 Swiss francs Reporting by John Revill; Editing by Michael Shields