ZURICH The Swiss National Bank cut its growth and inflation forecasts on Thursday and gave little sign of any faith that the euro zone's debt crisis had eased enough to let its franc currency float freely again against the euro.
After its quarterly meeting on policy, the bank said the Swiss economy would now grow just 1 percent this year - versus a previous 1.5 percent forecast - and saw consumer prices falling 0.6 percent this year, a touch more than earlier thought.
It reiterated its determination to defend a 1.20 per euro minimum exchange rate and take further measures if necessary, saying it would not allow the franc to strengthen given the serious impact this would have on prices and growth.
"Downside risks to the Swiss economy will also stay high in the near term," the SNB said in its statement.
Some economists said the slight downward revision in its forecasts for inflation and growth even added slightly to the bank's commitment to defend the minimum target rate.
But while the SNB's quarterly statement in June had stressed risks to the Swiss economy from "uncertainty about future developments in the euro zone", its comments on Thursday noted the vulnerability of the global economy as a whole.
"Growth prospects are being dampened by the euro area crisis, on the one hand, and the uncertainty surrounding forthcoming fiscal policy decisions in the US, on the other. The situation on the financial markets is also fragile," it said.
Nikola Stephan of Informa Global Markets said: "Global risks were highlighted as opposed to mainly euro zone ones. So overall, depending on how the situation plays out in the next couple of months, the SNB may consider minor tweaking of policy in December."
The SNB imposed the cap on the franc last September, citing the risk of deflation and recession after investors seeking a safe-haven from the euro zone's troubles drove it 20 percent higher in the space of just a few months.
While the SNB had to intervene heavily to defend the 1.20 limit in recent months - pushing foreign exchange reserves to 71 percent of national output - that pressure has eased as hope grew that policymakers were getting a grip on the debt crisis.
"FURTHER MEASURES" UNLIKELY AS EURO CRISIS EASES
After sticking close to 1.20 per euro since April, the franc fell to an eight-month low around 1.2155 last Friday, after the European Central Bank announced a plan to buy unlimited quantities of euro zone government bonds if need be.
The franc rose briefly versus both the euro and dollar after the SNB announcement, as some in the market were disappointed it had not shifted the cap. But it soon gave back those gains, dipping 0.4 percent to 1.2128 per euro.
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 1.20.
"They will stick to the lower band as strongly as they've stuck to it. It's still too high a risk to go towards 1.25," said Sarasin economist Jan Poser.
ING economist Julien Manceaux said he expected pressure on the franc - and the SNB - to abate thanks to the ECB and Wednesday's decision by Germany's constitutional court to allow Berlin to ratify the euro zone's permanent rescue fund.
"This does not mean that demand will not return, but for the moment further measures by the Swiss National Bank to support the floor - capital flow limitations or negative interest rates - are not likely," he said.
SNB Chairman Thomas Jordan said in May that the government has drawn up emergency plans - including capital controls - in case the euro collapses, although he said he did not expect that to happen.
In a poll conducted last week, only 8 of 23 economists expect the SNB to take such supplementary steps.
The bank trimmed its inflation forecast to show prices rising just 0.2 percent and 0.4 percent in 2013 and 2014 respectively, far below its 2 percent target.
Data out on Thursday showed Swiss producer and import prices eased 0.1 percent in August from a year earlier but rose 0.5 percent on the month, driven by an increase in the cost of oil, chemicals and pharmaceutical products.
The SNB kept its target range for the three-month Libor at 0.00-0.25 percent, as analysts polled by Reuters all expected.