* Foreign currency reserves rose more slowly in July
* Consumption robust, July unemployment at 2.7 pct
* Deflation pressures less than expected in July
* Finance Minister supports 1.20 franc cap vs euro
(Adds quote, details on inflation, background)
By Catherine Bosley and Andrew Thompson
ZURICH, Aug 7 (Reuters) – Switzerland’s foreign exchange
reserves rose more slowly in July while the jobless rate stayed
low and prices fell less than expected, suggesting pressure on
the currency cap that underpins the country’s economic strategy
may be easing.
The Swiss National Bank has not allowed the franc to
strengthen beyond 1.20 per euros since last September, seeking
to keep a lid on surging safe-haven inflows from investors
fleeing the euro zone crisis, which have threatened to tip the
country into a deflationary spiral and recession.
Pressure on the cap increased in recent months as the crisis
abroad worsened, forcing the SNB to spend heavily to defend it
and sending foreign currency reserves soaring. The franc briefly
breached the 1.20 threshold in April.
Those reserves hit 406.45 billion Swiss francs ($420
billion) – or nearly 70 percent of the country’s annual output –
last month, data submitted to the International Monetary Fund
showed on Tuesday.
But the pace of their increase eased to 41 billion francs,
suggesting the SNB may have bought fewer euros to defend the
cap. SNB spokesman Walter Meier said a big part of the rise in
July was due to purchases of foreign currency.
“As long as the turmoil in Europe goes on, the SNB has to
continue to intervene,” said Sarasin economist Alessandro Bee.
“But I have the impression the pressure is easing.”
Swiss Finance Minister Eveline Widmer-Schlumpf came out in
support of the cap on Tuesday and the SNB could continue to
intervene, as inflation remains low.
Consumer prices fell 0.5 percent in July from June, separate
data showed on Tuesday. The decline was less than expected,
suggesting that downward pressure on prices – and hence upward
pressure on the franc – was less intense.
“(The) euro/Swiss (franc exchange rate) seems to have come
under less pressure lately, which may also help to limit further
price falls,” said Nikola Stephan, analyst at IGM.
However, “the substantial rise in FX reserves suggests that
the SNB still has to step in repeatedly to prevent franc gains.”
ROBUST ECONOMY
SNB Chairman Thomas Jordan has pledged further supportive
measures if economic conditions worsen. But leading indicators
such as the KOF sentiment gauge signal rising
momentum and – in contrast to its euro zone neighbours – the
Swiss economy seems generally robust.
GDP expanded more than 2 percent in the first quarter of
2012, and the government raised its full-year growth forecast to
1.4 percent in June, saying robust domestic demand was helping
to offset the ill effects of the strong franc on exports.
The jobless rate held at 2.7 percent in July, data showed on
Tuesday, reinforcing the impression from buoyant trade data for
June that exporters’ concerns that the franc cap had been set
too high may have been overdone.
While straining to escape its cap against the euro, the
franc dipped more than 3 percent against the dollar in July,
helping make Swiss exports more competitive in dollar-based
economies.
In another sign that currency pressure may be easing, the
amount of cash commercial banks hold with the SNB – which may
reflect efforts by the SNB to defend its cap – rose less last
month than in June.
Daniel Hartmann of Bantleon Bank said further help for the
franc could come from the European Central Bank if it resumed
its sovereign bond-buying programme, which many in the market
have pencilled in for September.
But for now, “there’s nothing for the SNB to do but stick to
its (forex) limit,” he said
At the end of the second quarter, the SNB held 60 percent of
its reserves in euros, 22 percent in dollars, 8 percent in yen,
and the rest in a variety of other currencies.
($1 = 0.9677 Swiss francs)
(Reporting by Catherine Bosley; editing by John Stonestreet)
