Thomas Jordan's last dance: SNB Governor steps down

There is an end to an era in Swiss monetary policy. On Friday, 1 March, SNB Governor Thomas Jordan announced that he would step down in September after more than a decade in office. Jordan's tenure began in 2012 amid a debt crisis raging in the eurozone after the departure of his predecessor, Philipp Hildebrand, following controversy over his spouse's currency market transactions. Today's announcement comes as a surprise but involves no scandal. Indeed, the term of office of the SNB President is not fixed by law. There had already been speculation that Jordan might step down in 2021 when health problems temporarily incapacitated him.

Up to and beyond last year's collapse of the Credit Suisse bank, the array of crises that he had to deal with ensured Thomas Jordan's status as an icon of modern central banking and as one of Switzerland's most influential public officials. Thomas Jordan will also be associated with a period of unprecedented CHF strength. When he took the helm at the SNB, the EUR/CHF rate floor at 1.20 had just been established.

During his presidency, the so-called Black Thursday, 15 January 2015, took place. At that time, the euro exchange rate floor against the Swiss franc was abandoned, leading to an abrupt 30 pct appreciation of the Swiss franc. After that, there were no more such shocks, but the SNB repeatedly took decisions that clearly favoured the currency's strength. In 2022, interest rates were raised without prior announcement, ahead of the European Central Bank. In the same year, the era of negative interest rates that had begun in 2014 came to an end. A year later, the cost of money in Switzerland was raised to its highest level in 22 years, 1.75%, where it remains today. An auxiliary role in controlling inflation was entrusted to the currency's strength, which the central bank actively supported with powerful and regular interventions. As a result, by the end of last year, the CHF had reached multi-year highs against the USD and the EUR.

Thomas Jordan's tenure is likely to be sealed with a buckle. Its finale should be the start of interest rate cuts, which would be tantamount to success in the fight against stubbornly rising prices. CPI dynamics have been below the SNB's inflation target for more than six months and unexpectedly fell to 1.3% year-on-year in January. This means that one of the foundations of the franc's strength is beginning to crumble. The Swiss currency was already pulling away from most of its developed-market peers in February, with EUR/CHF rising above 0.95, 4 per cent below the lows of late December. With a change in the central bank's stance hanging in the air, the franc is likely to continue to slide in the coming months. Fintech Conotoxia's forecast is for the Swiss currency to gradually converge with the euro. However, a return to EUR/CHF parity is unlikely before Thomas Jordan steps down in September.

The urge to provide as accurate forward guidance as possible may lead to costly policy errors. Lack of full predictability sometimes allows triggering stronger market reactions. The end of Thomas Jordan’s reign could also pave the way for a more collective decision-making process.