FRANKFURT (MNI) – Worrisome public finances in some Eurozone
countries pose a risk to Switzerland’s overall positive outlook and keep
the central bank poised to prevent an excessive appreciation of the
Swiss franc against the euro, Swiss National Bank President Philipp
Hildebrand said Friday.

“For 2010, the SNB is currently expecting real GDP growth of about
1.5%. The risk of deflation has fallen in the wake of the economic
recovery. The most recent SNB inflation forecast from mid-March shows
that price stability is not threatened in the short term,” Hildebrand
told the SNB’s General Meeting of Shareholders, according to a speech
text provided in advance.

At the same time, “the SNB has sufficient leeway to maintain its
expansionary monetary policy for the time being”, he said, although
forecasts suggest that it cannot keep its loose stance over the forecast
horizon without endangering price stability.

However, Hildebrand warned that these forecasts are associated with
“considerable uncertainties.”

In particular, “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.

“Over the past few years, Switzerland has benefitted from the
advent of the euro and the associated increase in European currency
stability. Any threat to this currency stability would, by definition,
have a negative impact on Switzerland, above all if the Swiss franc were
to appreciate sharply due to its role as a safe haven currency,”
Hildebrand noted.

He assured, however, that the SNB will not “allow such a
development to turn into a new deflation hazard for Switzerland.”

“For this reason, it is acting decisively to prevent an excessive
appreciation of the Swiss franc,” he asserted. Hildebrand said that the
central bank will not have technical problems withdrawing excess
liquidity it pumped into the market as part of its crisis fighting
measures but that “the challenge lies in selecting the right moment for
a normalization of monetary policy.”

“A major factor in this decision will be the further development of
the inflation outlook,” Hildebrand said. He reaffirmed that “maintaining
price stability is the SNB’s utmost priority,” rejecting with some vigor
proposals to hike inflation targets.

However, other aspects such as “uncertainty about economic
development and the situation on the financial markets are also factored
into the monetary policy decision,” Hildebrand said.

Overall, Hildebrand said that “we can look to the future with a
measure of optimism” even though “the challenges that the crisis has
left in its wake are still substantial.”

On the global outlook, Hildebrand said that the “economy has been
in a phase of recovery since mid-2009″ and that the SNB expects that
this will continue, although “the recovery is still exposed to risks and
will vary greatly from region to region.”

–Frankfurt bureau; +49-69-720142; jtreeck@marketnews.com

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