The Swiss National Bank said on Thursday it was too early to change its policy on the strong franc despite signs of an easing of Europe's debt crisis that drove it to impose a cap of 1.20 per euro on the safe-haven currency.
Swiss policymakers have been engaged in a campaign of ultra-low interest rates, currency intervention and money market measures to prop up an economy hurt by record-breaking gains for the franc and the euro zone's downturn.
As hopes have grown that European leaders are getting a grip on the crisis, the franc has weakened, lifting pressure on the central bank, which has spent hundreds of billions of francs in recent months intervening to keep a lid on the currency.
After its quarterly policy meeting, the bank reiterated it was sticking with the 1.20 cap while its forecasts suggested the economy was still weakening. President Thomas Jordan said it was too early for it to relax its stance on the currency.
"We have a slight de-escalation, a slight relaxation. But we're still continuing to focus on enforcing the minimum exchange rate," Jordan said in a radio interview on Thursday. "At the moment there's no reason to discuss any kind of exit."
The European Central Bank's plan to buy euro zone government bonds, and a German constitutional court ruling allowing the plan to go ahead, have fuelled hope on financial markets that a debt crisis that stretches back three years may be easing.
The SNB, which imposed the cap on the franc a year ago after investors seeking a safe-haven from the euro zone's troubles drove the currency 20 percent higher in the space of just a few months, said the strong franc was still hurting the economy.
While it had to intervene heavily to defend the 1.20 limit in recent months - pushing foreign exchange reserves to 71 percent of national output - it spent less in August as signs emerged that the crisis might be easing.
Jordan declined to comment on foreign exchange interventions, but noted that "if you look at the exchange rate you can see that the pressure is less than it was."
The franc, which had clung to the 1.20 level since April as the euro crisis raged, fell to an eight-month low around 1.2155 last Friday on news of the ECB's bond-buying plan.
It rose briefly versus both the euro and dollar after the SNB announcement, as some in the market were disappointed it had not shifted the cap. But it soon gave back those gains, dipping 0.3 percent to 1.2121 per euro.
While the SNB's quarterly statement in June had stressed risks to the Swiss economy from "uncertainty about future developments in the euro zone", its comments on Thursday focused on the vulnerability of the global economy as a whole.
"Global risks were highlighted as opposed to mainly euro zone ones," Nikola Stephan of Informa Global Markets said. "So overall, depending on how the situation plays out in the next couple of months, the SNB may consider minor tweaking of policy in December."
Over the past year, trade unions and some exporters have urged the SNB to weaken the franc further, towards 1.40, but those calls have died down as the economy has held up fairly well and given the hefty SNB interventions to defend 1.20.
"They will stick to the lower band as strongly as they've stuck to it. It's still too high a risk to go towards 1.25," said Sarasin economist Jan Poser.
Jordan said in May that the government has drawn up emergency plans - including capital controls - in case the euro collapses, although he said he did not expect that to happen.
By repeating its pledge to take further steps, the SNB on Thursday dangled that threat at the market again.
Yet in a poll conducted last week, only 8 of 23 economists expect the SNB to take such supplementary steps.
ING economist Julien Manceaux said he expected pressure on the franc - and the SNB - to abate thanks to the ECB and the court's ruling: "This does not mean that demand will not return, but for the moment further measures by the Swiss National Bank to support the floor - capital flow limitations or negative interest rates - are not likely," he said.
The SNB trimmed its inflation forecast to show prices rising just 0.2 percent and 0.4 percent in 2013 and 2014 respectively, far below its 2 percent target.
The Swiss economy unexpectedly shrank in the second quarter, and Jordan said that contraction, along with weak growth in Europe and slowing momentum in emerging markets had prompted the SNB to cut its growth outlook. Data out on Thursday showed Swiss producer and import prices eased 0.1 percent in August from a year earlier but rose 0.5 percent on the month, driven by an increase in the cost of oil, chemicals and pharmaceutical products.
The SNB kept its target range for the three-month Libor at 0.00-0.25 percent, as analysts polled by Reuters all expected.