Reuters: US Dollar Report: UPDATE 1-SNB sticks firm to franc cap, cuts growth outlook

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UPDATE 1-SNB sticks firm to franc cap, cuts growth outlook Sep 13th 2012, 08:17 Thu Sep 13, 2012 4:17am EDT * Cuts 2012 growth forecast to 1 pct from 1.5 pct * Trims inflation outlook for 2012-2014 By Catherine Bosley ZURICH, Sept 13 (Reuters) - The Swiss National Bank reiterated its pledge to keep the franc weaker than 1.20 per euro and take further policy steps if necessary as it cut its growth and inflation forecasts and warned of further risks to the economy. Analysts said the tweaking of its forecasts and tough language on the franc showed the bank was not ready as yet to believe the euro zone's debt crisis may be easing despite a shift in market confidence over the past few weeks. But some also noted that in addition to reiterating concerns about the euro, the SNB had chosen to emphasis its worries about the U.S. economy rather than a deepening of the euro zone's problems. "The Swiss franc is still high and is weighing on the Swiss economy," the SNB said in a statement after its quarterly policy review on Thursday. "The SNB will not permit an appreciation of the Swiss franc, given the serious impact this would have on both prices and economic performance in Switzerland," it said. "If necessary, it stands ready to take further measures at any time." As widely expected, the SNB cut its growth forecast for 2012 to "around 1 percent" from a previous 1.5 percent. It also trimmed its inflation forecast, predicting prices would fall 0.6 percent this year and rise just 0.2 percent and 0.4 percent in 2013 and 2014 respectively, far below the SNB's 2 percent threshold for stable prices. "Growth prospects are being dampened by the euro area crisis on the one hand, and the uncertainty surrounding forthcoming fiscal policy decisions in the U.S., on the other," the SNB said. The franc rose briefly versus both the euro and dollar after the announcement, as some in the market who had speculated the cap might be shifted were disappointed.. But the currency soon gave back those gains, trading at 1.2096 per euro , little changed from before the decision. After months of sticking close to the SNB's 1.20 limit, the franc fell to an eight-month low around 1.21 against the euro last Friday, as investors cheered a European Central Bank bond-buying plan. Deutsche Bank economist Henrik Gullberg said: "They cut their growth forecast. It shows there are no chances of them letting the peg go. I think the market will still be looking for the opportunity for the SNB to raise the floor. Obviously they're not ready to do that yet." Over the past year, trade unions and some exporters have urged the SNB to weaken the franc further, towards 1.40, but those calls have died down as the economy has held up fairly well and given the hefty SNB interventions to defend the cap. The SNB imposed the cap on the franc last September, citing the risk of deflation and recession after the safe-haven currency soared 20 percent in just a few months as investors sought sanctuary from the euro zone crisis. The policy helped shield the economy, but at the cost of huge currency interventions - with the SNB's foreign exchange reserves ballooning to 71 percent of gross domestic product (GDP) - prompting questions about the policy's sustainability. However the economy unexpectedly contracted in the second quarter, helping to justify the cap. The SNB kept its target range for the three-month Libor at 0.00-0.25 percent, as analysts polled by Reuters all expected. Link this Share this Digg this Email Reprints

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