Thursday, December 13, 2012

Switzerland maintains interest, exchange rate targets

    The Swiss central bank maintained its targets for interest and exchange rates, as expected, saying the downside risks to the country's economy "remain considerable" and fourth quarter growth should be significantly weaker than in the third quarter.
    The Swiss National Bank (SNB) kept its target for three-month Libor at 0-0.25 percent and said that "if necessary, it stands ready to take further measures at any time."
    The bank also confirmed its intention to enforce the ceiling on the Swiss franc and keep it below 1.20 euro "with the utmost determination" and that it remains prepared to "buy foreign currency in unlimited quantities for this purpose." The ceiling was introduced in August last year after the franc rose to almost parity with the euro as investors sought safety in the Alpine country.
    The SNB said its latest inflation forecast was largely unchanged from September, with inflation subdued by Europe's weak economy and the impact of the past rise in the Swiss franc on prices stronger than originally expected.
    "In the foreseeable future, therefore, there is no risk of inflation in Switzerland," the bank said, forecasting deflation of 0.7 percent this year and 0.1 percent in 2013 and inflation of 0.4 percent in 2014.  Inflation was 0.2 percent in 2011.
    Switzerland's Gross Domestic Product expanded by 0.6 percent in the third quarter from the second for annual growth of 1.4 percent, up from the second quarter's 0.5 percent growth rate.
    But the SNB expects significant weakening in the fourth quarter and growth this year is forecast at around 1.0 percent and in 2013 1.0-1.5 percent.
    The SNB said the European Central Bank's actions had significantly reduced the probability of extreme developments in the euro area but there was still substantial uncertainty and it is also unclear how much U.S. economic growth will be hampered by the budget consolidation talks.
    "Moreover, momentum in the Swiss residential mortgage and real estate market remains strong, and has led to a further increase in risks for financial stability," the SNB said.


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