Swiss National Bank's Meyer Not Pleased or Surprised About Gold Price Drop
By Andreas Britt
Swiss National Bank's Hans Meyer `Not Pleased' About Gold Price
Zurich, Sept. 11 (Bloomberg) -- Swiss National Bank
President Hans Meyer said he is not pleased about the development
of gold prices, which have fallen since a number of central banks
including Switzerland's announced they will reduce gold reserves.
``It is obvious, that we are not pleased about the
development, but we are not surprised,' said Hans Meyer in an
interview with Finanz und Wirtschaft.
Gold fell to a 20-year low of $253.90 an ounce in July,
prompting mining companies to criticize gold sale plans by the
International Monetary Fund and central banks. Prices have since
recovered, though they are still down about 12 percent this year.
The SNB plans to sell about 1,300 metric tons of gold --
equal to about half the world's annual mine output -- which it
doesn't need as currency reserves. It expects the sales of about
half of Switzerland's holdings to become legally possible as of
next Spring, when a new Federal Law on Currency and Payment
Instruments should be in place, a prerequisite for gold sales.
``Fundamentally there is the intention to use it (the
ability to sell gold),' Meyer said, adding ``when and how this
will happen, we will see.' He said the bank had to do a
tightrope walk between the aim to proceed quickly with the sales
and the goal of reaching a ``reasonable' price.
Discount Rate
In the interview with the Swiss business biweekly, Meyer
also announced the SNB was examining ways of abolishing the
discount rate, because it had become ``obsolete.' Meyer said the
discount rate had no function, as there hadn't been any discount
transactions for years. ``The money supply works via currency-
swaps and repo-transactions,' Meyer told Finanz und Wirtschaft.
The SNB hadn't yet decided whether the repo-rate would
become the benchmark, saying only the new benchmark would be a
``market rate.' Repurchase agreements have been traded
electronically since mid-June on the Swiss exchange.
Repurchase agreements are increasingly replacing money-
market and currency-swap transactions. The central bank is using
repos as a tool to steer monetary policy, while commercial banks
find them cheaper and more efficient for internal financing.
Talking about Swiss economic growth and inflation, Meyer
said he saw no ``great risks' for inflationary pressures, adding
there was no reason to change the bank's forecast of annual
inflation rate of 1 percent, as there were ``no worrying
signals.'
Swiss consumer prices posted the biggest jump in 4 1/2 years
in August, rising 0.5 percent in the month and 0.9 percent in the
year. The government cited rising costs for heating oil and
package tours as main reasons behind the rise in inflation.
Inflation Watch
The SNB President warned inflation could indeed become more
important an issue than the exchange rate, if the economy kept
expanding. The bank has defined price stability its main target
for monetary policy. Similar to the European Central Bank, the
SNB sees a 2 percent annual rate of inflation as the maximum it
could tolerate.
The government will report the Swiss second-quarter
economic growth figures next Thursday, at 7:45 a.m. Economists
expect growth of an annualized 1 percent from the first quarter,
quickening from a rate of 0.4 percent from January through March.
``The economy recovers steadily,' Meyer told Finanz und
Wirtschaft.
Yesterday, SNB Vice President Bruno Gehrig said he
``couldn't exclude' higher rates ``in principle,' though
``current economic conditions are such that there's not much of a
reason to take strong action.'
Gehrig said the economy should grow between 1.0 percent and
1.5 percent this year, with the biggest push coming in the last
half, after the economy expanded 2.1 percent in 1998, final
figures released Friday showed. Still, the jobless rate fell for
a seventh month in August, to 2.4 percent, a seven-year low.
quote.bloomberg.com |
