UPDATE 2-SNB says FX intervention a success, sticking to policy

* SNB chairman repeats cbank’s intervention threat

* Says will not allow deflation risks from franc rise

* Says SNB does not react mechanically to inflation f’casts

* IMF says SNB should not hike rates too quickly

(Adds details, IMF forecast, background)

By Sven Egenter

ST. GALLEN, Switzerland, March 23 (BestGrowthStock) – The Swiss
National Bank will keep fighting an excessive rise of the franc
against the euro decisively to avoid deflation risks
resurfacing, its chairman said, adding the economy’s robust
performance proved the policy’s success.

Markets, however, were little fazed by Chairman Philipp
Hildebrand’s intervention rhetoric on Tuesday, with the Swiss
franc trading largely unchanged on the day but still within
sight of record levels hit at the height of the global financial
crisis. [ID:nLDE62M09H]

In a discussion following a speech at the University of St.
Gallen, Switzerland, students pressed Hildebrand on the success
of central bank interventions and the definition of “excessive”.

“If you want to assess the success, then you should not only
look at a certain exchange rate, but look at the success of the
Swiss economy,” Hildebrand said.

He repeated the central bank’s pledge to fight an excessive
rise of the Swiss franc.

“We have a broad range of means to prevent an excessive
appreciation and we are going to do this to ensure that the
recovery can continue,” he said.

“The instruments are clear: We buy foreign currencies. We
can do that in very large quantities,” he said. [ID:nZAT010782]

“An excessive appreciation is if deflation risks were to
materialise,” he said. “We will not allow this to happen.”


The Swiss economy shrank by 1.5 percent last year, but
emerged much less bruised from the global financial crisis than
many of its neighbours.

The central bank sees the economy growing around 1.5 percent
in 2010, a view shared by the International Monetary Fund in its
latest forecast for Switzerland, published on Tuesday.

“Any exit from expansionary policies should be gradual,” the
IMF said in a statement on the Swiss finance ministry’s website.
“Interest rates should not be raised too early or without regard
to a strengthening in the currency.” [ID:nWEB6792]

Interest rate futures point to a high probability that the
first small rise in the SNB’s target for the three-month Swiss
franc LIBOR interest rate — currently at 0.25 percent — will
be in September. (0#FES:: )


Hildebrand’s wording on the currency was in line with that
used by the central bank at its March 11 policy review, when
the SNB was seen to inch closer to raising interest rates with a
more optimistic set of forecasts on growth. [ID:nLDE6291VQ]

Markets have been mulling over the SNB’s intervention levels
after the central bank has allowed the franc to rise some 2
percent since the March meeting despite sticking to its pledge
to counter decisively an excessive rise against the euro.

The franc, seen as a safe haven asset, is now trading at
around 1.4330, within sight of its record high of 1.4296 hit in
October 2008 in the wake of the collapse of Lehman Brothers.

Hildebrand also repeated the central bank’s assessment that
price stability was not in danger in the short term but the
current expansionary monetary policy could not be maintained
over the SNB’s three-year forecast horizon.

The central bank forecasts that inflation will rise above
its 2 percent price stability threshold in 2012.

Hildebrand pointed out that the SNB’s inflation forecasts
were fraught with uncertainties.

“The SNB board does not react mechanically on the inflation
forecast,” he said.

“How fast the national bank reacts, if mid- to long-term
price stability is potentially in danger — as our current
forecast is showing — depends on various factors. The
uncertainty surrounding the economic developments and the
situation on the financial markets are such factors.”

Stock Market Today

(Reporting by Sven Egenter; Editing by Susan Fenton)

UPDATE 2-SNB says FX intervention a success, sticking to policy