UPDATE 2-SNB's Zurbruegg sees no negative policy rates

Tue Feb 5, 2013 11:35am EST

* Rates to rise once economic growth recovers

* No negative policy rates

* UBS, CS imposed negative rates on banks' franc deposits

* SNB's priority to keep lid on strong franc

ZURICH, Feb 5 (Reuters) - Swiss National Bank board member Fritz Zurbruegg expects interest rates to start moving up again once economic growth recovers, ruling out a move into negative policy rates.

"We will be moving up as soon as economic fundamentals come to bear," Zurbruegg told a conference in Zurich. "Once we get economic growth going we're going to see things normalise."

"This upturn could take a bit longer than some people would wish," he said, noting that there were still significant output gaps in large economies. "We do not see imminent inflation pressures despite very large liquidity in the system."

Zurbruegg said the SNB would not push rates into negative territory even after UBS and Credit Suisse said in December they would levy temporary fees and negative interest rates on other banks holding franc deposits.

"Negative interest rates in terms of policy rates are definitely not on the cards in Switzerland," he said, adding that the UBS and Credit Suisse move was "a logical business decision from their point of view".

The SNB kept rates at rock-bottom levels at its last monetary policy meeting in December, stressing its priority is to prevent the Swiss franc from appreciating after it capped the safe-haven currency at 1.20 francs per euro in 2011.

SNB chairman Thomas Jordan said last month the central bank continues to keep all monetary policy tools at the ready to keep the still strong franc in check.

Last year, SNB Vice Chairman Jean-Pierre Danthine stoked speculation that the central bank might move to negative rates citing Sweden's experience as evidence they could help.

Swiss officials also said last year they could consider imposing capital controls - such as negative rates on offshore deposits - to deter a new influx of hot money should the euro zone crisis worsen, but most economists see that as unlikely.

The SNB, which imposed the 1.20 limit on the franc to prevent a recession and deflation, had to intervene heavily last year to defend the limit, swelling foreign exchange reserves to 72 percent of national output.

But it has done less since September as a bond buying programme announced by the European Central Bank has paved the way for a calmer tone on financial markets.

The franc had stuck tight to the 1.20 limit since 2011, but it weakened past 1.25 last month as confidence returned to the euro zone, although the currency traded firmer again this week as concerns resurfaced.

"We're not out of the woods yet," Zurbruegg said, adding the SNB remained committed to ensuring low and stable inflation and said the big challenge for central banks like the SNB was choosing the right movement to end expansionary policy.

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