Swiss central bank stuns market with policy U-turn
By Alice Baghdjian and Silke Koltrowitz
ZURICH (Reuters) - The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the currency soaring against the euro and stocks plunging on fears for the export-reliant Swiss economy.
Only days ago, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to fend off deflation and a recession, as a policy cornerstone.
The U-turn sent the franc nearly 30 percent higher against the euro in chaotic early trading. Coming a week before the European Central Bank is expected to unveil a bond-buying program to counter deflationary pressures, it fed speculation that this quantitative easing (QE) scheme will be so big that the SNB would have struggled to defend the cap.
On social media, the move was dubbed "Francogeddon".
With more than 40 percent of Swiss exports going to the euro zone, firms across Switzerland warned of a plunge in profits, with the luxury and tourism industries most exposed.
"Today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," said Nick Hayek, chief executive of Swiss watch firm Swatch UHR.VX.
SNB Chairman Thomas Jordan denied at a news conference that the move amounted to a "panic reaction", saying the cap had been scrapped because it was unsustainable.
"If you decide to exit such a policy, you have to take the markets by surprise," Jordan said. Continued...