Swiss desperate to drive down franc

Switzerland's central bank yesterday sought for the second time in a week to combat a surge in its currency that threatens the country's export-led economy and pledged to make further interventions if necessary.

The Swiss National Bank (SNB) announced it would increase the supply of Swiss francs through foreign exchange transactions and boost the supply of liquidity to the money market.

The franc, which jumped nearly 5 per cent on Tuesday to near parity with the euro, fell slightly after the announcement but then kept rising.

The latest moves followed a surprise cut in interest rates a week ago, also aimed at bringing down the franc.

The bank said: "The massive overvaluation of the franc poses a threat to the development of the economy in Switzerland and has further increased the downside risks to price stability.

"The SNB is keeping a close watch on developments on the foreign exchange market and on financial markets. If necessary it will take further measures."

The SNB is wary of making direct interventions in the market after it suffered losses from buying euros in 2009 and 2010. But it is under pressure from Swiss companies to halt the climb of the franc.

Nestlé, the Swiss food giant, said yesterday that first-half sales were badly hit by the strength of the franc.

The Swiss currency is a traditional haven in rocky financial conditions because of the country's stable government, low debt levels, and neutrality in international affairs.

The eurozone crisis and concerns about the US's debts have sent the franc soaring against the euro and the dollar. The franc's climb threatens the Swiss economy, which depends on exports of goods such as watches, pharmaceuticals and chocolate.

Many countries are targeting a weaker currency in an attempt to trade their way out of the economic gloom. The UK's exports have been boosted by sterling's decline against other currencies and the US Federal Reserve is keen to keep the dollar weak to boost trade.