August 25, 2010 / 4:10 PM / 9 years ago

UPDATE 1-SNB chief says to react if deflation risks reappear

* SNB head sees no deflation, inflation at the moment-paper

* Hildebrand says Swiss growth cld be weaker in H2, 2011

* Says global economic crisis not over yet

(adds further quotes, franc, background)

ZURICH, Aug 25 (Reuters) - The Swiss National Bank would react should deflation risks resurface as the global economic crisis was not over yet, the central bank’s chairman said in a magazine interview due to be published on Thursday.

The SNB was focusing on its main goal, price stability, and had no exchange rate target, SNB head Philipp Hildebrand also told L’Hebdo according to a pre-print of the interview made available on Wednesday, a day ahead of the French language magazine’s publication. “At the moment, we have neither deflation nor inflation in Switzerland,” Hildebrand said, adding that growth of the Swiss economy should be around 2 percent this year.

When asked if Switzerland could see negative interest rates, Hildebrand said: “If deflation risks reappeared, we would try to respond. We are not there.”

Hildebrand added that compared to June — when SNB conducted its latest policy review — growth had proven “real” but it could be a bit weaker in the second half and next year.

Hildebrand warned against giving an all-clear for the Swiss economy despite the fact that the country had emerged less bruised from the global financial crisis than many of its peers and economic data was reassuring.

“This crisis is far from over,” he said. “The big lesson to learn for Switzerland — and I hope this could contribute to a more serene and healthy European debate — is to acknowledge that we are closely linked to the European Union.”

“We have seen that when Europe suffers a negative shock, we are severely affected,” he said.

The Swiss franc has surged to record highs against the euro in recent days as investors piled money in to the traditional safe haven currency.

The franc traded at 1.3000 per euro by 1522 GMT, within sight of the record level of 1.2968 hit earlier in the session.EURCHF=

The franc rise accelerated after the SNB dropped its pledge to intervene in the currency markets at its June meeting, saying that deflation risks had largely disappeared and the economy was on track for a healthy recovery.

But industry body Swissmem said on Wednesday the speed of the franc’s appreciation was a major concern for Switzerland’s manufacturing industry, squeezing exporters’ margins and slowing their recovery.[ID:nLDE67O0DE]

The SNB will next decide on its monetary policy on Sept 16.

Markets firmly expect the central bank to hold interest rates unchanged at ultra-low levels after Hildebrand warned in another interview published on Aug 21 against the risk of raising rates too early.[ID:nLDE67K03G]

A spokesman for the central bank said the interview in L’Hebdo had been conducted a couple of days ago without specifying the date.

Reporting by Sven Egenter and Silke Koltrowitz; editing by Patrick Graham

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