SNB chief denies Swiss seek competitive devaluation

* SNB using exchange rate to stabilise economy

* Franc appreciating as Swiss emerge from recession

* Recovery driven by domestic demand rather than exports

GENEVA, Nov 28 (Reuters) - Switzerland is using exchange rate policy to stabilise the economy and is not devaluing the franc to gain an export advantage, Swiss National Bank Chairman Jean-Pierre Roth was quoted on Saturday as saying.

The Swiss franc CHF= hit a 19-month high against the dollar on Thursday and some traders said the central bank had intervened to stem its rise. [ID:nGEE5AP27H]

Roth noted in an interview with Swiss daily Neue Zuercher Zeitung that in March the franc had been appreciating while interest rates were at zero in a recession.

"We could only halt this vicious circle via the exchange rate," Roth said.

"We are sticking to this line. It is not competitive devaluation. We will continue to have lower inflation than neighbouring countries for some time which will tend to push up the franc," he said.

The Organisation for Economic Cooperation and Development recommended on Nov. 19 that Switzerland should withdraw monetary policy stimulus once economic recovery, expected to start at the end of this year, takes hold, but avoid the risk of deflation. [ID:nLI671948]

Roth said the SNB was already doing what the OECD wanted.

He denied Switzerland was taking a free ride on other countries' stimulus programmes.

The Swiss economy was benefiting from remarkably strong domestic demand, not exports, he said.

"We are not simply profiting from other people's programmes. We are emerging from the crisis in a better financial and economic state than many European countries and in foreign trade we are better diversified," he said.

The Swiss franc was also better for the Swiss economy than membership of the euro would be.

"We have lower interest rates and lower inflation. If we had higher interest rates and higher inflation we should join the euro ... The reality is that we have no incentive to join because our performance is better," Roth said.

Consolidating debts and budget deficits would not affect monetary policy directly but would be an enormous burden for the economies of many European countries, he said.

"I am profoundly convinced that Europe will emerge significantly weakened from this crisis," he said.

"The Americans have an ability to solve problems that we always find a little surprising. Europe is not so willing to reform," he said, pointing to problems with old-age pensions, health costs and high unemployment.

Roth said the crisis had led to improved cooperation between central banks, with the Swiss National Bank consulting the Bank of England and the Federal Reserve while preparing a rescue package for Swiss bank UBS (UBSN.VX).

But it would be an illusion to think that banking crises could be eliminated for all time.

"We don't know where the next crisis is lurking, so our response is: more capital in the banking sector!," he said.

Strengthening bank capital was central, but other issues such as false incentives -- a reference to bankers' salary and bonuses -- also needed attention, he said.

"Many objections here are somewhat populist but it is irritating when those who cause problems do not have to bear the costs," he said. (Reporting by Jonathan Lynn, editing by Mike Peacock) ((jonathan.lynn@reuters.com; +41 22 733 3831; Reuters Messaging: jonathan.lynn.reuters.com@reuters.net ))