By Sven Egenter
ZURICH, March 11 (Reuters) - The Swiss National Bank inched closer to a first rise in interest rates with a more optimistic view on growth on Thursday, but it knocked back expectations it would soften its stance on curbing excessive currency gains.
The SNB raised its growth forecast and predicted that inflation would breach its 2 percent threshold for price stability by 2012. Several analysts said that put it firmly on track to raise rates in the second half of this year.
But it stuck to the same language on its fight to stop gains in the franc from choking off the recovery, saying excessive appreciation would lead to an undesired tightening of monetary conditions, and kept interest rates unchanged as expected.
'The signs of an economic recovery are becoming more tangible,' the bank said in a statement after its quarterly policy meeting. 'However, the revival remains fragile and is associated with uncertainties.'
'(The SNB) will act decisively to prevent an excessive appreciation of the Swiss franc against the euro.'
The franc fell against the euro after the bank's statement, hitting a session low of 1.4630, compared with 1.4610 before the statement.
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For a graphic on the franc's move and rumoured SNB interventions click:
http://graphics.thomsonreuters.com/310/CH_SNB0310.gif
Reuters TV: http://link.reuters.com/geq63j
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RATE EXPECTATIONS
The SNB's statement failed to sway the market view that the central bank was in no rush to raise rates. But money markets were still pricing in a rise by December.
'The 2011 inflation forecast was unchanged, but the raised inflation forecast at the end of the forecast horizon (2012) is hinting at monetary tightening further down the line,' UBS analyst Reto Huenerwadel said.
Some analysts said the central bank may still let the franc drift higher despite sticking to its intervention threat.
'We still expect the SNB to allow a gradual rise in the Swiss franc and our target is for 1.43 francs (per euro) by year-end,' said Tom Levinson, currency strategist at ING.
In a recent Reuters poll a majority saw the SNB first hiking rates in December though a strong minority put bets on a rise in September, some seeing the SNB moving even ahead of the European Central Bank despite the strength of the franc.
The SNB has already unwound most of the drastic measures it took a year ago to battle Switzerland's deepest recession in more than three decades and fend off broader price deflation.
On Thursday, the central bank dropped its earlier commitment to provide the economy with generous supplies liquidity.
The Alpine economy has emerged less bruised than many of its peers from the global crisis despite its large banking sector, moving out of recession over the summer and growing by 0.7 percent on the quarter in the last three months of 2009.
STABILITY BREACH
The SNB said the economic recovery was underway in Switzerland and was even starting to improve demand for labour.
The central bank raised its growth forecast to around 1.5 percent from a previous forecast of gross domestic product growth of between 0.5 to 1.0 percent.
The SNB predicted a breach of its threshold for price stability of 2 percent in 2012 with average inflation of 2.2 percent. It raised its inflation forecast for 2010 slightly to 0.7 percent for 2010 and left the 2011 prediction at 0.9 percent.
It also indicated concerns about the consequences of the ultra-low rates on the housing market.
'The SNB is warning banks and borrowers to be extremely cautious, in view of the growth in mortgage loans and the continuing increase in residential real estate prices,' the SNB said.
Consumers and banks had to take into account that interest rates were at exceptionally low.
Some analysts have argued that such domestic factors may eventually lead the bank to raise rates even if the Swiss franc remind strong.
The central bank kept its target band for the 3-month Swiss franc LIBOR unchanged at 0.00-0.75 percent. It will continue to aim to keep the LIBOR at 0.25 percent.
For a factbox on the SNB's interventions:
For a factbox on the SNB's crisis measures:
For a chronology of SNB rate changes:
(Additional reporting by Zurich newsroom; editing by Patrick Graham) Keywords: SWISS SNB/ (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
ZURICH, March 11 (Reuters) - The Swiss National Bank inched closer to a first rise in interest rates with a more optimistic view on growth on Thursday, but it knocked back expectations it would soften its stance on curbing excessive currency gains.
The SNB raised its growth forecast and predicted that inflation would breach its 2 percent threshold for price stability by 2012. Several analysts said that put it firmly on track to raise rates in the second half of this year.
But it stuck to the same language on its fight to stop gains in the franc from choking off the recovery, saying excessive appreciation would lead to an undesired tightening of monetary conditions, and kept interest rates unchanged as expected.
'The signs of an economic recovery are becoming more tangible,' the bank said in a statement after its quarterly policy meeting. 'However, the revival remains fragile and is associated with uncertainties.'
'(The SNB) will act decisively to prevent an excessive appreciation of the Swiss franc against the euro.'
The franc fell against the euro after the bank's statement, hitting a session low of 1.4630, compared with 1.4610 before the statement.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on the franc's move and rumoured SNB interventions click:
http://graphics.thomsonreuters.com/310/CH_SNB0310.gif
Reuters TV: http://link.reuters.com/geq63j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
RATE EXPECTATIONS
The SNB's statement failed to sway the market view that the central bank was in no rush to raise rates. But money markets were still pricing in a rise by December.
'The 2011 inflation forecast was unchanged, but the raised inflation forecast at the end of the forecast horizon (2012) is hinting at monetary tightening further down the line,' UBS analyst Reto Huenerwadel said.
Some analysts said the central bank may still let the franc drift higher despite sticking to its intervention threat.
'We still expect the SNB to allow a gradual rise in the Swiss franc and our target is for 1.43 francs (per euro) by year-end,' said Tom Levinson, currency strategist at ING.
In a recent Reuters poll a majority saw the SNB first hiking rates in December though a strong minority put bets on a rise in September, some seeing the SNB moving even ahead of the European Central Bank despite the strength of the franc.
The SNB has already unwound most of the drastic measures it took a year ago to battle Switzerland's deepest recession in more than three decades and fend off broader price deflation.
On Thursday, the central bank dropped its earlier commitment to provide the economy with generous supplies liquidity.
The Alpine economy has emerged less bruised than many of its peers from the global crisis despite its large banking sector, moving out of recession over the summer and growing by 0.7 percent on the quarter in the last three months of 2009.
STABILITY BREACH
The SNB said the economic recovery was underway in Switzerland and was even starting to improve demand for labour.
The central bank raised its growth forecast to around 1.5 percent from a previous forecast of gross domestic product growth of between 0.5 to 1.0 percent.
The SNB predicted a breach of its threshold for price stability of 2 percent in 2012 with average inflation of 2.2 percent. It raised its inflation forecast for 2010 slightly to 0.7 percent for 2010 and left the 2011 prediction at 0.9 percent.
It also indicated concerns about the consequences of the ultra-low rates on the housing market.
'The SNB is warning banks and borrowers to be extremely cautious, in view of the growth in mortgage loans and the continuing increase in residential real estate prices,' the SNB said.
Consumers and banks had to take into account that interest rates were at exceptionally low.
Some analysts have argued that such domestic factors may eventually lead the bank to raise rates even if the Swiss franc remind strong.
The central bank kept its target band for the 3-month Swiss franc LIBOR unchanged at 0.00-0.75 percent. It will continue to aim to keep the LIBOR at 0.25 percent.
For a factbox on the SNB's interventions:
For a factbox on the SNB's crisis measures:
For a chronology of SNB rate changes:
(Additional reporting by Zurich newsroom; editing by Patrick Graham) Keywords: SWISS SNB/ (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
