* SNB keeps cap, target rate for LIBOR on hold
* Sees substantial risks to global economic recovery
* Says closely monitoring impact of ECB rate cut
* Trims inflation outlook for 2015, 2016
(Adds details, quotes from news conference)
By Alice Baghdjian
BERNE, June 19 The Swiss National Bank on
Thursday stuck to its almost three-year old policy of capping
the franc at 1.20 per euro and said it stood ready to take
further steps if necessary in the wake of the recent easing by
the European Central Bank.
The SNB capped the franc at 1.20 per euro in September 2011
after investors fleeing the debt crisis snapped up the
safe-haven currency, sending it to record highs, hurting the
country's exporters and threatening to snuff out inflation.
It has not had to sell francs to defend the cap in more than
a year. But the ECB's decision this month to cut its deposit
rate to below zero could make Switzerland a relatively more
attractive destination for investment again, meaning the SNB has
to keep rates lower for longer to keep a lid on the franc.
"We are closely monitoring the impact of the recent interest
rate reductions in the euro area on Switzerland. Should there be
a need for action, the SNB will take the necessary measures,"
Jordan said in Berne.
ING economists said further interventions by the SNB on the
foreign exchange markets before the end of the year could not be
ruled out, but it noted the current size of the central bank's
balance sheet would limit the extent of any operations.
"If the pressure was to be too high, the SNB would have to
turn to other kinds of instruments," ING said.
Jordan told a news conference he did not rule out the use of
negative interest rates to defend the minimum exchange rate. He
said the cap remained the right tool for the forseeable future.
The SNB also warned of the danger of greater volatility on
financial and foreign exchange markets, referring to stark
differences in when central banks around the world may exit
their currently expansionary monetary policies.
While the ECB has cut rates to record lows and decided to
pump money into the euro zone economy, the U.S. Federal Reserve
has hinted at a slightly more aggressive pace of interest rate
hikes starting next year.
Evidence is also mounting that the Bank of England will
shift towards a rate rise before the end of the year.
The Swiss economy sprang back from a weak fourth quarter at
the start of this year, but its performance fell short of
expectations, with tentative signs of a recovery in Europe
having yet to feed through to higher demand for Swiss exports.
This prompted the Swiss government to scale back its
forecasts for economic growth for this year and next on Tuesday,
saying slow growth in Switzerland's biggest trading partner, the
European Union, could weigh on demand for goods.
In its statement, the SNB cautioned there were still
substantial risks attached to the economic recovery which in
turn could hamper Switzerland's export-orientated economy, but
it kept its growth forecast for the year at 2.0 percent.
"What is surprising is how cautious the SNB is in its
economic outlook," said J. Safra Sarasin economist Alessandro
"They emphasize the risks, for instance structural issues as
well as warning of possible volatility because of different
monetary policy cycles."
The SNB stuck to a target band for the Swiss franc LIBOR of
0 to 0.25 percent, as all economists in a Reuters
poll had forecast.
It tweaked up its inflation forecast for 2014 to 0.1 percent
from a previous 0.0 percent, but trimmed its inflation forecasts
for 2015 and 2016 to 0.3 percent and 0.9 percent respectively.
"We still really see no inflationary pressure in
Switzerland. That means the SNB can keep monetary policy very
accommodative," said Maxime Botteron, an economist at Credit
A majority of economists polled by Reuters expect the
central bank to keep the minimum exchange rate in place until at
least 2016 or later.
Despite a slight slowdown in the pace of mortgage lending
growth, the SNB said there was no evidence of any sustainable
easing in the mortgage and real estate markets and it would
continue to monitor the situation closely.
From the end of this month, banks will have to hold 2
percent extra capital against risk-weighted assets in their
SNB Vice Chairman Jean-Pierre Danthine said the central bank
was preparing additional measures that could be implemented if
(Reporting by Alice Baghdjian, Katharina Bart, Silke Koltrowitz
and Joshua Franklin. Writing by Caroline Copley. Editing by Hugh