UPDATE 1-SNB sticks to franc cap, threatens further steps
UPDATE 1-SNB sticks to franc cap, threatens further steps
Sticks to forecast for 2012 inflation of -0.3 pct
* Trims inflation forecast for 2011, 2013
* Sees growth slowing to 0.5 pct in 2012
* Franc rises vs euro, dollar
By Catherine Bosley and Silke Koltrowitz
BERNE, Dec 15 (Reuters) – The Swiss National Bank held its cap on the franc at 1.20 per euro on Thursday, knocking back speculation it would move to weaken the currency further, although it said it could take further action at any time if risks to the economy mount.
The bank forecast modest growth for next year and only slightly falling prices – leaving analysts divided over whether a rise in the franc cap was likely early in 2012.
“Even at the current rate, the Swiss franc is still high and should continue to weaken over time. The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require,” the SNB said in a statement.
The SNB set the cap on the soaring safe-haven franc on Sept. 6, citing a threat of deflation and of a contracting economy but speculation had mounted in recent weeks that the central bank might shift the cap to weaken the franc further.
The franc jumped after the announcement, trading up 0.8 percent at 1.2277 per euro at 0851 GMT.
The SNB stuck to the forecast it made in September for prices to slip 0.3 percent next year but pared its inflation forecast for 2011 to 0.2 percent from a previous 0.4 percent and for 2013 to 0.4 percent from a previous 0.5 percent.
The risk of the policy of intervention is that it raises upward pressure on prices and the lack of inflation hence offers the bank room to be more aggressive in fighting the franc’s surge against the euro over the past two years.
“In the foreseeable future, there is no risk of inflation in Switzerland. If foreign demand were to fall off more sharply than expected, downside risks to price stability would emerge,” the SNB said.
Citing the threat to the economy due to the overvalued franc and slowing global demand, the SNB forecast growth of 0.5 percent for 2012 after 1.5-2 percent this year.
“The international outlook continues to be highly uncertain. A further escalation of the European sovereign debt crisis cannot be ruled out,” the SNB said. “Given our country’s close relations with the euro area, Switzerland’s economic prospects are highly dependent on how the crisis develops.”
Data has shown that the Swiss economy is losing momentum: Exports have begun to sag due to the strong franc, consumer prices have fallen, third-quarter growth was the softest since 2009 and leading indicators such as the KOF barometer have pointed to a further slowdown.
The SNB kept its target for the three-month Swiss franc LIBOR at “close to zero” at its policy review, as had been widely expected.
Earlier this week the Swiss government cut its growth forecast for next year to 0.5 percent and its inflation forecast to -0.3 percent.
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Sticks to forecast for 2012 inflation of -0.3 pct
* Trims inflation forecast for 2011, 2013
* Sees growth slowing to 0.5 pct in 2012
* Franc rises vs euro, dollar
By Catherine Bosley and Silke Koltrowitz
BERNE, Dec 15 (Reuters) – The Swiss National Bank held its cap on the franc at 1.20 per euro on Thursday, knocking back speculation it would move to weaken the currency further, although it said it could take further action at any time if risks to the economy mount.
The bank forecast modest growth for next year and only slightly falling prices – leaving analysts divided over whether a rise in the franc cap was likely early in 2012.
“Even at the current rate, the Swiss franc is still high and should continue to weaken over time. The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require,” the SNB said in a statement.
The SNB set the cap on the soaring safe-haven franc on Sept. 6, citing a threat of deflation and of a contracting economy but speculation had mounted in recent weeks that the central bank might shift the cap to weaken the franc further.
The franc jumped after the announcement, trading up 0.8 percent at 1.2277 per euro at 0851 GMT.
The SNB stuck to the forecast it made in September for prices to slip 0.3 percent next year but pared its inflation forecast for 2011 to 0.2 percent from a previous 0.4 percent and for 2013 to 0.4 percent from a previous 0.5 percent.
The risk of the policy of intervention is that it raises upward pressure on prices and the lack of inflation hence offers the bank room to be more aggressive in fighting the franc’s surge against the euro over the past two years.
“In the foreseeable future, there is no risk of inflation in Switzerland. If foreign demand were to fall off more sharply than expected, downside risks to price stability would emerge,” the SNB said.
Citing the threat to the economy due to the overvalued franc and slowing global demand, the SNB forecast growth of 0.5 percent for 2012 after 1.5-2 percent this year.
“The international outlook continues to be highly uncertain. A further escalation of the European sovereign debt crisis cannot be ruled out,” the SNB said. “Given our country’s close relations with the euro area, Switzerland’s economic prospects are highly dependent on how the crisis develops.”
Data has shown that the Swiss economy is losing momentum: Exports have begun to sag due to the strong franc, consumer prices have fallen, third-quarter growth was the softest since 2009 and leading indicators such as the KOF barometer have pointed to a further slowdown.
The SNB kept its target for the three-month Swiss franc LIBOR at “close to zero” at its policy review, as had been widely expected.
Earlier this week the Swiss government cut its growth forecast for next year to 0.5 percent and its inflation forecast to -0.3 percent.
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