Central bank holds interest rates steady

Roth is refusing to get carried away by signs of growth Keystone

The Swiss National Bank (SNB) announced on Friday that it would leave key short-term interest rates unchanged.

This content was published on December 12, 2003 minutes

The bank said it would keep borrowing costs low until it is sure a weak recovery in the Swiss economy has taken hold.

The SNB had been widely tipped to maintain its target band for the three-month Swiss franc Libor rate at 0.0-0.75 per cent, where it has been since its seventh consecutive rate cut in March.

The bank continues to aim for the lower end of the band, or 0.25 per cent.

In its quarterly policy assessment, the SNB noted it had relaxed monetary policy considerably over the past two years.

It reiterated its forecast that the Swiss economy would see a moderate decline in activity this year, but would grow "by slightly over 1.5 per cent in 2004".

However, the bank said it was in no rush to raise rates.

"There are still certain risks that the economic development will not be sustained," said SNB president Jean-Pierre Roth.

"The upswing in Switzerland should not be jeopardised by a premature changeover to a more restrictive monetary policy.

"We are convinced that we shall have sufficent time to keep inflation within the bounds of price stability by tightening monetary policy at a later point in time."

Cautiously positive

Analysts said the bank's comments underlined its eagerness not to move too quickly and kill off nascent growth.

"The fact that the rates were left unchanged at this level shows the sensitivity of the SNB towards economic growth," said UBS economist Reto Huenerwadel.

"They are afraid of choking off growth too early."

Roth said there was still a danger that the Swiss recovery could be short-lived, citing potential market upheaval or geopolitical risks.

But he said the cyclical risks to an upswing were now "significantly more balanced than even a few months ago".

Some observers believe the SNB will be one of continental Europe’s first central banks to raise official interest rates.

Hungry for good news

Markets, investors and policy-makers – all looking for signs that Switzerland’s sluggish economy is poised for a recovery - had eagerly awaited the central bank’s quarterly economic review.

Most economists were hoping for a positive assessment of the coming months.

Although the benchmark Swiss Market Index has increased by more then 16 per cent since the beginning of the year, the real economy has shown less sign that it will recover significantly in 2004.

There are also lingering worries about when Switzerland’s jobless rate - currently running at around four per cent - will fall.

Most forecasters predict growth next year of around one per cent, which is not considered enough to fuel job creation.

The SNB's quarterly statement is the first economic assessment since Wednesday's cabinet election, which saw a shift to the Right in the government’s make-up.

Business commentators have largely welcomed the arrival of Christoph Blocher, an industrialist from the People’s Party, and the conservative businessman, Hans-Rudolf Merz.

swissinfo with agencies

Central bank

The SNB forecast average inflation of 0.4% in 2004, 1% in 2005 and 2.3% in 2006.

But the bank maintained it was in no rush to raise interest rates, preferring to keep them at record lows.

Analysts say the bank is wary of moving too fast and choking off the fragile recovery.

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