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Central bank cuts rates again

Interest rates are on the way down again

The Swiss National Bank cut its key interest rate by half a point on Friday amid indications the Swiss economy is slowing along with the rest of Europe.

In the fourth rate cut this year, the central bank lowered its three-month London Inter-Bank Offered Rate, or Libor, to between 1.25 and 2.25 per cent. The bank said it would aim for the middle of the range.

The cut had been expected as the economy has become increasingly sluggish. The low level of inflation also gave the bank room for manoeuvre.

At its year-end news conference in Zurich, the bank also slashed its forecast for economic growth. The SNB chairman, Jean-Pierre Roth, said the economy had slipped into virtual stagnation in the second half of 2001.

The economy is now expected to grow by 1.5 per cent in 2001 and around 1 per cent next year. In June, the forecast was two per cent for the current year and 2.1 per cent in 2002.

“We consider the current interest rate level and the existing monetary conditions to be adequate to enable the economy to return to sustainable, non-inflationary growth,” said Roth.

Fallout from September 11

But he added that it was hard to gauge how quickly the global economy would rebound from the shock of the September 11 terror attacks on New York and Washington.

The SNB cut its rate target twice in September following the attacks but it said the economic situation and the continuing strength of the Swiss franc merited Friday’s action.

“The economic situation has continued to deteriorate around the globe,” said Roth, “In Switzerland, there are no signs that price stability might be jeopardised in the medium term. This development makes it possible to reduce rates again.”

The inflation rate is expected to remain between 0.9 per cent and 1.5 per cent for the next three years.

Rising unemployment

Unemployment is expected to rise further, following Friday’s news that the jobless rate had increased to 2.1 per cent. It’s the first time that unemployment has risen above two per cent in 19 months.

Business leaders welcomed the SNB’s rate move.

“If the SNB had not acted there would have been fears of more pressure for the franc to appreciate,” said Swiss Business Federation board member, Rudolf Walser. “And that would have worsened the situation in some sectors of the export economy.”

The franc reached a record high against the euro ten days after the terror attacks on the US and has since fluctuated between SFr1.46 and SFr1.47.

Most exporters would like to see the franc ease to around SFr1.53.

swissinfo with agencies

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR