Swiss removal of currency cap a surprise: IMF chief Lagarde

Currency rates displayed at an exchange office in Geneva on Jan 15, 2015. -- PHOTO: AFP
Currency rates displayed at an exchange office in Geneva on Jan 15, 2015. -- PHOTO: AFP

WASHINGTON (AFP) - The managing director of the International Monetary Fund, Christine Lagarde, appeared to be taken aback Thursday by Switzerland's abrupt removal of its currency cap for the franc with the euro.

"This was a bit of a surprise," Lagarde said in an interview with US business-news channel CNBC, calling for more "cooperation and communication" among central banks.

The Swiss National Bank announced earlier in the day it was abandoning the minimum rate of 1.20 francs against the euro, a ceiling it had imposed three years ago to hold down the value of the franc against the currency of the 19-nation eurozone, of which it is not a member.

The Swiss central bank decision sent the franc soaring and the Swiss stock market tanking.

"I'm going to reserve judgment on the pertinence of that move because we haven't discussed it with Governor (Thomas) Jordan," Lagarde said, referring to the head of the SNB.

Lagarde also acknowledged that she had not been informed in advance of the Swiss decision.

"I find a bit surprising that he didn't contact me. I would hope that it was communicated with other colleagues of central banks. I'm not sure it was," she added.

Asked about whether the Swiss action risks sparking a currency war, the IMF chief predicted "more volatility" on the forex markets due to the divergent economic outlooks that major central banks are facing.

The Federal Reserve is expected to raise US interest rates this year from near zero, where they have been pegged since December 2008 to support the economy's recovery from deep recession. The Fed ended its massive asset-purchase stimulus programme, or quantitative easing, in October on signs the economy is back on a moderate growth path.

By contrast, the European Central Bank is widely expected to launch a QE programme at its next policy meeting, on Jan 22, to counter deflation and weak growth in the shared-currency bloc.