HONG KONG (Reuters) - The Swiss central bank's 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, Luxembourg's finance minister told Reuters on Monday.
Last week, the Swiss National Bank unexpectedly abolished the three-year-old 1.20 ceiling on the franc against the euro, fuelling at one point a rally of up 40 per cent in the Swiss currency that sent some currency trading platforms bust.
The move, made only days after the Swiss central bank had reiterated its commitment to the peg, was ahead of a key ECB meeting on Thursday (Jan 22) that could see it approve a bond-buying scheme to fight deflation and revive growth in the euro zone.
"It is not a secret that the ECB is considering introducing quantitative easing," Luxembourg Finance Minister Pierre Gramegna said 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 launch of QE measures this week was "a possibility".
Gramegna, who will become the chairman of the Eurogroup of finance ministers in July, said that despite current market volatility, he did not expect a victory of Greece's anti-bailout Syriza party on Jan. 25 to cause a new financial crisis that would threaten the integrity of the single European currency.
"Europe is now much better prepared today to face whatever tensions than three years ago, when the Greek crisis was a large factor of instability," Gramegna said.
Greece's Syriza party is solidifying its opinion poll lead over the ruling conservatives eight days before the country's political election, a survey showed on Saturday.
The election in Greece is being closely watched by financial markets, nervous that a Syriza victory might trigger a standoff between Greece and its European Union and IMF lenders, and spark a repeat of the euro zone sovereign debt crisis.