Switzerland's central bank officials have just eaten theirwords, risking lingering indigestion in financial markets.

Just three days after Swiss National Bank (SNB) Vice PresidentJean-Pierre Danthine called the franc cap a “pillar” of monetarypolicy, the SNB yesterday dropped the minimum exchange rate of 1.20 per euro.

The shock abandonment of the SNB's primary policy of the pastthree years may now leave investors warier of taking officials'words at face value, according to economists including KarstenJunius, chief economist at Bank J. Safra Sarasin AG in Zurich. Byscrapping one tool, the franc cap, SNB President Thomas Jordanrisks blunting the effects of another.

“The SNB's credibility has suffered a bit,” said Junius, aformer economist at the International Monetary Fund. “Statementswill get read in the future with a bit more caution. Verbalinterventions will hardly work any more.”

The central bank's regular pledge to defend the franc cap with“utmost determination” had become part of the institution's brand,not least because of the success of that policy in protecting thecountry's domestic economy.

“They've lost part of their credibility, I think,” Han De Jong,chief economist at ABN Amro Bank NV in Amsterdam, told Angie Lau onBloomberg Television's “First Up” program. “Whatever they will say,markets will not trust them very much.”

'Unreliable Boyfriend'

George Buckley at Deutsche Bank AG, also argues the SNB's wordsare hard to reconcile with the SNB's new policy stance.

“Their commentary now means nothing,” he said. “This is notutmost determination, is it?”

Bank of England Governor Mark Carney has suffered similarcriticism. He was labeled an “unreliable boyfriend” by one U.K.lawmaker last year for giving conflicting messages on the possibletiming of interest-rate increases in the U.K.

SNB President Jordan yesterday defended his surprise move,saying that a tool like the cap would always need to be abandonedunexpectedly. Anatoli Annenkov at Societe Generale SA agrees.

“It's something we aren't used to anymore because most centralbanks are talking about warning markets, improving communication,not surprising anymore,” Annenkov said by phone from London. “Butin such circumstances, there's basically no other way to do this.Markets would have speculated, positioned themselvesbeforehand.”

–With assistance from Simon Kennedy in London.

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