FRANKFURT (MNI) – The Swiss National Bank on Thursday left its
target range for the three-month Swiss franc Libor unchanged at
0.0%-0.75% and said it would continue targeting the lower end of the
range at approximately 0.25%.

At the same time, the central bank raised its growth and inflation
forecasts for 2011.

The decision to keep interest rates on hold this month had been
widely expected, given the strong Swiss franc and comparatively benign
inflation pressures.

Earlier this week the franc hit a fresh record high against the
dollar and also firmed against the euro as investors moved into safe-
haven currencies following Japan’s earthquake, tsunami and nuclear
disaster.

The central bank lifted its inflation forecast for 2011 to 0.8%
from 0.4% seen in December last year. In 2012 inflation is seen rising
to 1.1% (1.0%), still falling short of the SNB’s price-stability target
of slightly under 2.0%, before climbing further to 2.0% in 2013.

Higher 2011 inflation forecasts are “due to a renewed sharp
increase in oil prices, more dynamic domestic growth and more positive
assumptions for the global economy…..From mid-2012 onwards, the impact
of the recent Swiss franc appreciation has a moderating influence on the
forecast,” the central bank said in a statement.

Swiss consumer prices rose a slightly more than generally expected
0.4% m/m in February, taking the annual inflation rate in February to
0.5%. Low inflationary pressure by international standards can largely
be ascribed to the strong franc, which dampens the impact of rising
commodity prices.

Nevertheless, the central bank has long warned that “the current
expansionary monetary policy cannot be maintained over the entire
forecast horizon without compromising long-term price stability.” The
European Central Bank’s signal that it may hike interest rates as early
as next month has stoked speculations over a nearing rate hike.

For the short-term, however, there is “no threat to price
stability,” the SNB asserted.

SNB board member Thomas Jordan also appeared to want to dampen such
expectations. Earlier this month, he said that rate hikes are “not a
question of today or tomorrow but of the longer term.”

The SNB hiked its GDP growth forecast for 2011 to 2.0% from a
previous forecast of 1.5%.

Earlier this month, the Swiss State Secretariat for Economic
Affairs reported that the economy had grown a healthy 0.9% q/q in the
final quarter of 2010. Forward looking indicators continue to show
robust growth, suggesting that the slowdown forecast by the central bank
may not be as severe as previously expected.

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Frankfurt Bureau tel.: +49-69-720 142, email: jtreeck@marketnews.com

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