Swiss franc stability not at risk from ultra-loose policy - SNB

ZURICH (Reuters) - The Swiss National Bank's ultra-loose monetary policy poses little risk to the Swiss franc's stability and can be reversed at any time should demand for the safe-haven currency weaken, SNB Chairman Thomas Jordan said on Thursday.

"The unprecedented expansion in the monetary base in recent years does not pose a particular threat to the stability of the Swiss franc's value," Jordan said in remarks prepared for a conference on sound money.

"With the increase in money supply, the SNB has simply reacted to rising demand, and its focus in doing so has been firmly on its mandate to ensure the stability of the Swiss franc and thus the supply of sound money," he added.

The SNB is ready to buy more foreign currency, it said last month while keeping policy on hold, citing political risks which could heap appreciation pressure on the franc and stall economic recovery.

Jordan said the SNB had the tools it needed to reverse course if necessary.

"If the demand for Swiss francs weakens, the supply of money can be reduced at any time, thus ensuring that the currency retains its value," he said.

"However, one important condition for a successful reduction in money supply is that the SNB must have unrestricted control over its balance sheet. And in particular, it must, if necessary, be able to sell foreign currency for Swiss francs, in the same way as it has been able to make foreign currency purchases in recent years.

"We therefore must also firmly reject any ideas aimed at channelling our assets into a sovereign wealth fund, even

though we may be highly sympathetic to the matters in question, such as securing pension provision."

Jordan warned against making central banks an instrument of state financing amid the coronavirus pandemic, insisting that they remain independent actors.

"Switzerland has been able to manage the additional debt well thus far thanks to the fact that its public finances were in good order when the crisis hit," he said.

"That said, the coronavirus crisis has fuelled aspirations here, too. There have been mounting calls for the SNB to make massive additional profit distributions. However, there are two things to bear in mind here. On the one hand, the size of any distribution depends on the earnings potential of our investments. And on the other hand, a central bank's equity must be sufficiently high to cover the risks in its balance sheet."

(Reporting by Michael Shields, editing by Silke Koltrowitz)