SNB against raising Swiss government payments to cover COVID-19 fallout - official

ZURICH, June 23 (Reuters) - The Swiss National Bank (SNB) is against increasing its payment to the country’s national and regional governments to tackle the economic fallout from the COVID-19 pandemic or fill holes in their budgets, Vice Chairman Fritz Zurbruegg said.

The SNB, which made a profit of nearly 50 billion Swiss francs ($52.8 billion) last year, has faced increasing calls to distribute more than the 4 billion francs agreed this year.

“If we start to link SNB profit distributions to special requests or earmarking, these profits will take on a political significance that they should not have,” Zurbruegg told Swiss newspaper Neue Zuercher Zeitung in an interview to be published on Tuesday.

“This would set a precedent, the profits would be politicised.”

Zurbruegg said monetary policy could not cushion the blow of COVID-19 on the Swiss economy, which the SNB has forecast will contract by 6% this year.

“This is where fiscal policy comes in. If fiscal policy is now no longer able to use its instruments, this will lead to a worse overall economic result.”

The crisis has led to renewed appreciation pressure on the Swiss franc this year as investors have sought safe-haven assets, a development the SNB has countered by ramping up its foreign currency purchases.

As a result, the SNB’s balance sheet has expanded to more than 900 billion francs, raising fears Switzerland could be branded a currency manipulator by the United States.

Zurbruegg said there were no limits to how far the SNB’s balance sheet could expand, while the central bank was in close contact with the United States to explain Switzerland’s special situation and its highly valued currency.

“It is not a question of gaining competitive advantages at the expense of others. It is difficult to argue that the franc is weak,” he said.

“Intervention is essential for us as a small open economy to ensure adequate monetary conditions.”

$1 = 0.9473 Swiss francs Reporting by John Revill; Editing by Pravin Char