The franc dropped five percent against the dollar and the euro after Jordan declined to rule out any measure that was compatible with independent monetary policy, including temporarily pegging the franc to the euro.
Analysts speculated the most likely next step for the bank would be to impose negative interest rates — forcing banks to charge clients to hold their money — something Switzerland last saw in the 1970s and which was used more recently by Japan.
The franc’s 40 percent surge against the euro since 2008 is hammering Swiss exporters and worries it could spark a new recession drove the SNB to slash rates to zero last week. It took further steps on Wednesday to flood the market with francs.
But the SNB has so far refrained from a return to outright intervention in markets after a campaign of franc-selling in 2009-2010 saw it rack up substantial losses to little effect, prompting calls for Chairman Philipp Hildebrand to step down.
“We still have at the moment possibilities to make monetary policy more expansive without intervening in foreign exchange markets,” Jordan told Swiss newspaper TagesAnzeiger in an interview, adding that the SNB could further boost liquidity and was also looking at other monetary policy measures.
Asked about temporarily pegging the franc to the euro — which the SNB would have to defended through interventions — Jordan said: “Temporary measures that influence the exchange rate are part of our mandate so long as they are compatible with long-term price stability.”
In April 2010 the SNB tried targeting a 1.4350 francs per euro level by buying the cross on dips but ultimately failed.
“Our view is that the scale of FX losses to date ... means the political hurdle for further FX intervention is very high,” analysts from Nomura said in a note to clients.
Hildebrand has said permanently tying the franc to the euro would require a change to the constitution, which enshrines independent monetary policy, as it would effectively hand control over interest rates to the European Central Bank.
Credit Suisse economist Fabian Heller was also skeptical about a temporary peg to the euro: “Given how overvalued the franc is, it wouldn’t make sense at current levels.”
The franc was down 5.3 percent against the euro at 1.085 per euro and 5 percent against the dollar at 1421 GMT amid market speculation the euro/Swiss franc pair could be pegged at 1.15 francs.
Jordan’s comments also stoked speculation that Switzerland could be considering some kind of negative interest rate.
Swiss interest rate futures crossed the 100.0 mark which shows investors pricing in negative returns for the first time ever on Wednesday, partially thanks to the SNB’s provision of extra liquidity.
“The excessive liquidity in the franc is increasingly growing through our measures and the holding of francs is becoming increasingly unattractive,” Jordan said.
But analysts doubt that the imposition of some sort of charge in return for holding assets in francs would deter investors if a global stock market sell-off continues.
“The overall CHF pricing depends significantly on perception of fear in the macro environment and not small interest rate differential gains or losses,” said Swissquote chief currency analyst Peter Rosenstreich.
“Should the US or Europe trigger another round of safe haven flow the marginal deposit fee will not deter investors from accumulating francs.”
In a separate interview with newspaper Le Temps, SNB Board Member Jean-Pierre Danthine said the central bank was not excluding any option including interventions or negative interest rates on offshore deposits.
But he cautioned that some schemes had no legal basis, would take a while to implement, would be easy to circumvent and would have to be carefully constructed to be effective, while others would have very negative secondary effects.
Swiss exports have held up remarkably well despite the strong franc but the dramatic franc jump in recent weeks casts doubt on the SNB’s June forecast for 2011 growth of 2 percent.
Jordan said the SNB would only produce a new growth forecast at its regular policy review in September but said he expected a significant slowdown in the second half.
