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SNB Retains Floor Rate For Franc, Keeps Interest Rate Near Zero


The Swiss National Bank on Thursday decided to maintain the minimum exchange rate of the Swiss franc at 1.20 per euro and also retained the key interest rate close to zero. The central bank said that the franc is still overvalued, with the appreciation of the franc last summer exerting stronger downward pressure on price levels than anticipated.

In the monetary policy statement published today, the central bank said that it will continue to enforce the minimum exchange rate of CHF 1.20 per euro. The target range for the three-month Libor will remain unchanged at 0.00-0.25 percent. The decision was in line with economists' expectations.

The bank said it is prepared to buy foreign currency in unlimited quantities and will maintain liquidity in the money market at an exceptionally high level.

The central bank also noted that even at the current rate, the value of Swiss franc is still high. However, the exchange rate floor is having an impact as it reduced exchange rate volatility and gives business leaders a better basis for planning.

The bank said indications are that Switzerland's economy is stabilizing. For 2012, the SNB is forecasting moderate growth close to 1 percent, stronger than the 0.5 percent growth previously estimated.

Based on SNB's conditional forecast, which is based on the assumption of a three-month Libor of 0.0 percent, the consumer price index may fall 0.6 percent in 2012, faster than the 0.3 percent decline projected in December.

"Last summer's appreciation of the Swiss franc had a stronger dampening effect on prices than anticipated," SNB said, adding, in the longer term, inflation will be lowered by the worsening growth outlook for the euro area and the continuing high valuation of the Swiss franc

For 2013, the central bank is expecting inflation of 0.3 percent, down from the 0.4 percent projected in December. For 2014, it predicts an inflation rate of 0.6 percent. "In the foreseeable future, there is no risk of inflation in Switzerland," the bank said.

"If developments in the international economy are worse than foreseen, or if the Swiss franc does not weaken further, as expected, downside risks for price stability could re-emerge," the bank said. SNB reiterated that it is ready to take further measures at any time if the economic outlook and the risk of deflation so require.

It also noted growing signs of imbalances in the Swiss mortgage and real estate market for residential property and warned that if these imbalances increase further, this could lead to considerable risks to financial stability.

The Swiss economy expanded 0.1 percent quarter-on-quarter during the fourth quarter, bolstered by strong private consumption and foreign trade.

The State Secretariat for Economic Affairs,or SECO, upwardly revised its forecast for the gross domestic product this year to 0.8 percent from the 0.5 percent projected in December. Meanwhile, the growth prediction for 2013 was cut marginally to 1.8 percent from 1.9 percent.

by RTTNews Staff Writer

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