Reuters: US Dollar Report: UPDATE 2-SNB to keep lid on franc, sees weaker end to year

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UPDATE 2-SNB to keep lid on franc, sees weaker end to year Dec 13th 2012, 10:17 Thu Dec 13, 2012 5:17am EST * SNB sees risks from euro zone, U.S. "fiscal cliff" * SNB sees economy weakening in Q4, growing 1-1.5 pct in 2013 * Trims inflation forecast for 2012, 2013 * Franc rallies after decision By Silke Koltrowitz and Emma Thomasson BERNE/ZURICH, Dec 13 (Reuters) - The Swiss National Bank stressed its determination on Thursday to keep a lid on the franc at 1.20 per euro, saying the fragility of the global economy would support demand for the safe-haven currency, making new interventions possible. In a statement after its quarterly policy review that slightly lowered its near-term outlook for inflation, the SNB said while the economy picked up again in the third quarter after a slight downturn in the previous three months, it expects a significant weakening in the fourth quarter. "Given the fragility of global conditions, the downside risks also remain high for Switzerland," SNB Chairman Thomas Jordan said, noting substantial uncertainty surrounding the euro zone debt crisis and budget consolidation in the United States. "While the gradual revival in the global economy is having a supportive effect, the strength of the Swiss franc will hold back export momentum and corporate investment expenditure." Jordan said global uncertainty would continue to drive demand for secure investments like the franc despite the calmer mood on financial markets since the European Central Bank announced a bond buying programme in September. "We cannot exclude the possibility that we will have to intervene substantially again," Jordan said. Financial investors' main interest in what has been a largely uneventful year for SNB policy remains the franc and there had been some speculation ahead of the meeting that it could shift the franc cap or impose negative interest rates. But the bank has said regularly that it cannot shift the cap at will and the franc rose 0.2 percent against the euro to 1.2089 at 0922 GMT as any speculation to the contrary was disappointed. "No surprises despite rampant rumors on the cap in the run-up to today's rates meeting," said ZKB analyst Cornelia Luchsinger. SNB INTERVENTIONS Moves by the two biggest Swiss banks to charge other banks for holding franc deposits has pushed the franc to a 10-week low below 1.21 in the past week - inadvertently helping the SNB by weakening the currency. That had revived speculation that the SNB might impose negative interest rates on offshore deposits or move the cap towards 1.30 although many currency strategists are predicting the franc is likely to continue to weaken of its own accord as concerns about the break up of the euro zone subside. "The situation for the SNB has improved, as the euro zone crisis has eased somewhat. The SNB no longer has to intervene," said Martin Huefner of Assenagon Asset Management. "Further measures are not necessary... Even negative interest rates are not necessary, as the pressure from inflows has subsided." The SNB's foreign exchange reserves fell for a second month running in November, illustrating there was little need for the central bank to intervene to defend the 1.20 limit. But the reserves are still equivalent to 72 percent of gross domestic product after heavy interventions earlier in the year. SNB board member Fritz Zurbruegg said the SNB would continue to try to diversify its huge foreign currency investments, currently largely held in highly-rated government debt in euros, dollars and pounds sterling. The SNB confirmed its forecast for 1 percent full-year growth and predicted growth of 1-1.5 percent in 2013, at the upper end of most analyst forecasts. It trimmed its inflation forecast, predicting prices would fall 0.7 percent this year and 0.1 percent in 2013, rising just 0.4 percent in 2014, far below the SNB's 2 percent threshold for stable prices. Swiss producer and import prices rose 1.2 percent year-on-year in November and were flat compared to the previous month showing the SNB's lid on the franc is helping to stave off deflation. Earlier on Thursday, the Swiss government said it was cautiously optimistic for the economic outlook assuming the euro zone debt crisis does not again escalate even as it trimmed its growth forecast for 2013 to 1.3 percent. The SNB kept its target range for the three-month Libor at 0.00-0.25 percent, as analysts polled by Reuters all expected. The SNB said it saw a further increase in risks for financial stability from the booming Swiss residential mortgage and real estate markets, but said it would not decide until later whether to force banks to hold more capital against any possible crash. Earlier this year, the government announced authorities could impose a "countercyclical buffer" on banks of an extra 2.5 percent of risk weighted assets to boost their resilience if they see credit growth getting out of control. Link this Share this Digg this Email Reprints

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