The Swiss currency is still overvalued at CHF 1.20 against the euro, posing major challenges to the economy, Swiss National Bank President Thomas Jordan said Friday.
"The year 2012 is likely to be another difficult one. At CHF 1.20 against the euro, the Swiss currency is still overvalued and presents major challenges to our economy," he said during a speech at the general meeting of shareholders.
Jordan, who was appointed as president on April 18, said if the international economic developments worsen more than forecast or if the Swiss franc does not weaken further as expected, renewed downside risks for price stability could emerge. "Should the economic outlook and the threat of deflation require it, the SNB is prepared at any time to take further measures."
He said that minimum exchange rate of CHF 1.20 per euro, which was introduced on September 6, has proved to be effective so far.
Jordan cautioned that an appreciation of the Swiss franc at the current time would again expose Switzerland to considerable risks and endanger both price stability and the stabilisation of the economy.
"Given this situation, the SNB will enforce the minimum exchange rate with the utmost determination," he added.
According to Jordan, a minimum exchange rate is an "extreme measure," which is introduced in a situation of "massive overvaluation," to avert the worst developments. "It is neither a panacea capable of solving all the problems facing the Swiss economy, nor can it simply be implemented for any desired level, free of any risk," he said.
Jordan still considers the European sovereign debt crisis as the biggest risk. "It is unclear whether the measures taken so far will really succeed in defusing the situation permanently," but the sovereign debt crisis still has the "potential to seriously affect the international financial system as well as international economic development," the policy maker said.
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