SNB acted in anticipation of ECB QE, says Luxembourg finance minister Pierre Gramegna
SNB acted in anticipation of ECB QE, says Luxembourg finance minister Pierre Gramegna, Reuters

The Swiss central bank's recent decision to scrap its franc cap came in anticipation of the European Central Bank's likely adoption of quantitative easing measures seen weakening the euro, according to Luxembourg's finance minister Pierre Gramegna.

The ECB will announce its monetary policy decision on 22 January, when it could approve a bond-buying scheme to battle deflation and revive growth in the eurozone.

Luxembourg Finance Minister Gramegna
Luxembourg's Finance Minister Pierre Gramegna at the Asian Financial Forum in Hong Kong on 19 January. Reuters

"It is not a secret that the ECB is considering introducing quantitative easing," Gramegna told Reuters on the sidelines of the Asian Financial Forum in Hong Kong.

"For the Swiss authorities that was an emergency situation. They knew that if quantitative easing came, that would have raised the pressure so much on the Swiss franc that they could have not defended the peg."

"So they anticipated that and prevented themselves from spending huge amounts of foreign reserves," Gramegna said, adding that the rollout of ECB QE measures this week was "a possibility".

Scotiabank's Erika Cain said in a note to clients: "...The SNB was likely forced to scrap the ceiling due to the rising cost of intervention as safe haven flows, due to the Russian crisis and expectations of further monetary stimulus by the ECB, have put sharp appreciating pressure on the franc. It also highlights the international spillover of an abrupt 'exit strategy' from interventionist policy by a major central bank.

"...In our view, the SNB must believe that QE by the ECB is imminent or that further geopolitical risk/the Russian economic crisis will continue to fuel massive capital inflows that will make it increasingly difficult for the bank to defend the currency ceiling..."

Lloyds Bank said in a note: "The European Court of Justice's opinion this week on the legality of the ECB's OMT programme all but gave the green light for the start of sovereign debt purchases in the euro area.

"...Although we do not think [ECB President Mario Draghi] will explicitly state the size of the programme or give full details of the framework, he is likely to restate the ECB's intention of raising the size of its balance sheet back to its 2012 level, an increase of €1tn from the current level.

"Allowing for the impact of the other measures already announced, this could imply around €600bn ($693bn, £458bn) of QE. So as not to disappoint markets, President Draghi is likely to indicate that the balance sheet size could be increased further if required."

Earlier, Societe Generale raised doubts about the success of the anticipated ECB QE programme.

SocGen said in a note: "We argue ECB QE could be five times less efficient than in the US. Hence for inflation to reach close to a 2.0% threshold medium term, the potential amount of asset purchases needed is €2-3tn, not a mere €1tn.

"So the onus will remain on delivery of better-designed fiscal policy and structural reform. But it is difficult to be hopeful on these fronts."

The Swiss National Bank (SNB) shocked financial markets on 15 January by scrapping a three-year-old cap on the franc against the euro and lowering interest rates, sending the franc 30% higher against the euro and 25% against the US dollar.