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Switzerland Maintains Currency Ceiling; Keeps Rate Steady

Switzerland Maintains Currency Ceiling; Keeps Rate Steady
12/13/2012 6:24 AM ET

The Swiss National Bank retained the currency ceiling and its key interest rate near zero as widely expected by economists, as the bank sees sluggish growth in the coming year.

The bank led by President Thomas Jordan decided on Thursday to maintain the minimum exchange rate of CHF 1.20 per euro.

The SNB said it will continue to enforce the floor rate with the 'utmost determination' as an appreciation of the Swiss franc would compromise price stability and would have serious consequences for the Swiss economy.

Further, the bank reiterated that it is prepared to buy foreign currency in 'unlimited quantities' to enforce the exchange rate.

The target range for the three-month Libor was maintained at 0.0-0.25 percent. The bank said it stands ready to take further measures at any time, if needed.

For 2012, the SNB forecasts consumer prices to fall 0.7 percent, compared to a 0.6 percent drop estimated at the September meeting.

The bank expects overall prices to ease 0.1 percent in 2013 and inflation at 0.4 percent in 2014. In the foreseeable future, there is no risk of inflation in Switzerland, it said. In September, the bank had estimated a 0.2 percent inflation for 2013.

According to the SNB, economic growth in Switzerland for the year 2012 is likely to remain unchanged at around 1 percent, in line with September forecast. For 2013, the bank expects growth of 1 percent-1.5 percent.

The economy grew 0.6 percent in the third quarter, strongly recovering from a 0.1 percent contraction in the previous three months.

Although real GDP in the third quarter increased following a temporary downturn, the SNB expects significant weakening in growth in the fourth quarter.

Even at current levels, the currency is likely to act as a drag on growth in the coming quarters, Jonathan Loynes, chief European economist at Capital Economics said.

If Eurozone crisis re-escalate, safe haven flows into the currency may well pick back up again, providing a sterner test of the SNB's determination, he said.

The Swiss economic growth in 2013 is likely to be weaker than previously thought due to deteriorating global economic conditions, the State Secretariat For Economic Affairs (SECO) suggested Thursday.

Gross domestic product is now expected to grow 1.3 percent next year, at a slightly weaker pace than the 1.4 percent growth forecast in September. The GDP projection for this year was left unchanged at 1 percent. Growth is seen picking up momentum further in 2014 with the GDP expanding 2 percent

The KOF Institute last week lowered the Swiss economic growth, citing weaker exports and investments. It projects 1.2 percent growth for next year.

Earlier, the SNB had introduced a countercyclical capital buffer allowing the Federal Council to increase the capital buffer of banks depending on potential excesses in the Swiss credit market. ING Bank NV's economist Julien Manceaux expects this facility to be used in 2013.

by RTT Staff Writer

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