UPDATE 1-Franc rise vs dlr limits SNB rate hike room-Jordan

* Strong franc tightens monetary conditions- Jordan in paper

* Rates must rise over time to keep prices stable mid-term

* Urges parliament to pass tighter bank regulation

(adds details background)

ZURICH, March 29 (Reuters) – The Swiss franc’s surge against
the dollar limits the Swiss central bank’s leeway to raise
interest rates, Swiss National Bank vice-chairman Thomas Jordan
said in a newspaper interview.

However, Jordan indicated that resuming market interventions
was not on the cards because the global economic outlook was
much better than in 2009 and early 2010, when the SNB sold
billions of francs to stem the currency’s rise.

“We are concerned. The (franc’s) rise is tightening monetary
conditions and that limits our room for manoeuvre in normalising
interest rates,” Jordan told twice-weekly business newspaper
Finanz und Wirtschaft when asked about the dollar’s decline.

The franc is trading around 0.92 per dollar, not too far off
an all-time high of 0.8963 hit in the wake of this month’s
devastating earthquake and tsunami in Japan.

The Swiss currency’s strength has been the key reason for
the central bank to keep borrowing costs at ultra-low levels,
despite a brighter growth outlook.

The SNB raised its growth forecast to around 2 percent at
its quarterly meeting on March 17 but warned against risks from
the disaster in Japan, the debt crisis in the euro zone and the
turmoil in the middle east.

Jordan said that while monetary conditions were appropriate
overall, interest rates were at a “comfortable” level for the
domestic economy while exporters faced a big challenge from the
franc’s strength.

“Monetary policy will certainly have to become more
restrictive over time in order to ensure price stability in the
medium-term,” Jordan said.

The SNB was not pursuing an exchange rate target. “But the
exchange rate is an important indicator for interest rate
policy,” he said. “A strong franc dampens the economy and
inflation. We take that into account.”

TOUGHER BANK RULES

Financial markets currently price in a first post-crisis
interest rate hike for September.(0#FES:: Quote, Profile, Research)

However, the International Monetary Fund (IMF) said in its
recent assessment of the Swiss economy that the central bank
should be in a position to tighten borrowing costs in the
near-term, barring any more shocks. [ID:nLDE72R13M]

Jordan repeated the SNB’s recent stance that currency
interventions were not warranted given the better economic
outlook. But the SNB retained the option to intervene, should
the economic developments call for it, he added.

The SNB vice-chairman, who is also in charge of financial
stability at the central bank, called on parliament to rapidly
approve proposed “too big to fail” legislation, aimed at
ensuring that the collapse of a big bank would not pull down the
whole economy.

“Only when the rules are fully in force would the risk to
taxpayers be significantly reduced,” Jordan said.

The rules Switzerland is proposing would require banks like
UBS (UBSN.VX: Quote, Profile, Research) (UBS.N: Quote, Profile, Research) and Credit Suisse (CSGN.VX: Quote, Profile, Research) (CS.N: Quote, Profile, Research) to hold
more capital than the new international standards known as Basel
III. [ID:nLDE6BL11E]

The country’s political parties all agree that tougher rules
are needed but have criticised parts of the proposals. The
government is expected to issue a formal message to parliament
soon and it is possible that a law could be passed this year.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a scenarios piece on the likelihood of the law being passed, click on [ID:LDE72M0HS] For a factbox on the positions of various parties, click on: [ID:LDE72N1BA] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Reporting by Sven Egenter and Jonathan Gould; Editing by
Ron Askew)

UPDATE 1-Franc rise vs dlr limits SNB rate hike room-Jordan