SNB says euro zone debt woes cloud Swiss outlook

BERNE, April 30 (BestGrowthStock) – The Swiss National Bank is
keeping up its fight to prevent too sharp a rise in the Swiss
franc as a strong appreciation triggered by the euro zone debt
crisis could pose deflation risks, the bank’s chairman said on
Friday.

Markets assume that the central bank has been intervening in
recent days, keeping the franc stable versus the euro when the
common currency came under severe pressure due to worries that
the Greek debt crisis could spread to other euro zone countries.

Switzerland was well placed for a recovery and the economy
should grow by about 1.5 percent this year, SNB chairman Philipp
Hildebrand said in the text of a speech due for delivery at the
central bank’s annual general meeting in Berne.

Expected low near-term inflation allowed the central bank to
stick to its ultra-loose monetary policy for now, though its
March forecast also showed that rates could not stay low over
the next couple of years without creating inflation risks, he
said.

The inflation forecast was also fraught with uncertainties.

“The most recent financial market concerns that have arisen
about the public finances of individual euro area countries
represent a considerable risk in this regard,” he said.

A threat to the euro’s stability would inevitably also hurt
Switzerland, especially if the franc were to appreciate sharply
in its role as a safe-haven currency, Hildebrand said.

“The SNB will not … allow such a development to turn into
a new deflation hazard for Switzerland,” he said. “For this
reason, it is acting decisively to prevent an excessive
appreciation of the Swiss franc.”

Swiss consumer prices fell 0.5 percent last year. The SNB
forecast at its March meeting inflation of 0.5 percent for 2010
and a rise to above its 2 percent price stability threshold in
2012.

AN ISSUE OF TIMING

The central bank began currency interventions in March 2009
to fend off deflation threats.

It has allowed the franc to rise since its December meeting
but a jump in the SNB’s euro holdings in the first quarter
showed the central bank has also continued to intervene.

Currency traders have said the SNB has recently kept the
euro-franc rate above the 1.43 level through constant
interventions, countering pressure from general euro weakness
and strong Swiss economic data.

The interventions are also creating a dilemma for the
central bank as they inflate its balance sheet and add franc
liquidity to the market, which fuels inflation.

But Hildebrand said the central bank had the right
instruments for rapidly absorbing large amounts of liquidity,
mainly through issuing its own debt — SNB bills — and through
using reverse repos.
“The challenge lies in selecting the right moment for a
normalisation of monetary policy,” Hildebrand said.

The inflation outlook would be key in defining the right
moment, said Hildebrand, though the SNB would also factor in
uncertainties about the economic outlook or the financial market
situation.

Most analysts currently expect the central bank to raise its
0.25 percent target for 3-month franc LIBOR in the second half
of the year after the Swiss economy emerged from recession less
bruised than many of its neighbours.

Stock Market Basics

For the full text in English click: www.snb.ch
(Reporting by Sven Egenter; editing by John Stonestreet)

SNB says euro zone debt woes cloud Swiss outlook