Switzerland's central bank maintained its ceiling on the Swiss franc's exchange rate and its interest rate target, saying it is still "ready to enforce minimum exchange rate, if necessary, by buying foreign currency in unlimited quantities, and to take further measures, as required."
The Swiss National Bank (SNB), which imposed an upper limit on the franc's exchange rate to the euro in September 2011, said the Swiss franc was still high and despite reduced tensions on financial markets, the minimum exchange rate "remains essential."
"It prevents an undesired tightening of monetary conditions were the upward pressure on the Swiss franc to intensify once again," the SNB said, adding the target for the 3-month Libor rate would remain at zero to 0.25 percent, the level it has been at since April 2009.
The Swiss franc was quoted at 1.23 to the euro earlier today, below the SNB's 1.20 upper limit that has been defended by intervention in foreign exchange markets, boosting the bank's holdings.
The cap on the franc/euro exchange rate was imposed by the SNB two years ago when investors feared a breakup of the euro zone and sought safe haven in the Swiss currency, boosting its value and making Swiss exports uncompetitive worldwide.
The SNB said the outlook for inflation had hardly changed since its previous policy meeting in June though higher oil prices and a slightly more positive assessment of the economic situation had pushed up the forecasts.
The SNB now forecasts inflation of minus 0.2 percent for 2013, up from the June forecast of minus 0.3 percent, and 0.3 percent for 2014, up from a previous forecast of 0.2 percent. The 2015 forecast remains unchanged at 0.7 percent.
Headline inflation has been negative in Switzerland for the last 23 months with prices unchanged at zero percent in August and July.
The SNB said the global economy had continued to recover slowly in recent months with growth in Germany and France stronger than expected but in contrast economic activity in emerging economies has been sluggish.
"The risk of less favourable global economic developments has decreased somewhat compared to the last quarter," the SNB said, adding that structural problems persist in Europe and this could cause new tensions on the markets.
Economic growth in Switzerland had exceeded expectations in the second quarter and the SNB revised upwards its 2013 growth forecast to 1.5-2.0 percent from a previous 1.0-1.5 percent.
The Swiss Gross Domestic Product expanded by 0.5 percent in the second quarter from the first for annual growth of 2.5 percent, up from 1.2 percent.
Imbalances on the Swiss mortgage and real estate markets may still increase though the central bank said there were signs of an easing with price growth in some segments slowing.
"Nevertheless, mortgage lending is still climbing more rapidly than GDP. Additionally, starting at a high level, real estate prices increased further," the SNB said.