UPDATE 1-SNB's Maechler says Swiss franc weakening welcome but fragile

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ZURICH, Aug 31 (Reuters) - The Swiss franc’s recent weakening against the euro is a positive development but the trend was “fragile”, Swiss National Bank governing board member Andrea Maechler said on Thursday.

The franc has lost ground against the euro in recent weeks as the eurozone’s economy has shown signs of improvement and political uncertainties have cleared.

“Overall, the trends are pointing in the right direction for the Swiss franc, but it is too early to say whether these trends are sustainable,” Maechler told an economic conference in Yverdon-Les-Bains.

“The situation remains relatively fragile.”

Maechler said the SNB’s policy of negative interest rates and a readiness to intervene in the currency markets to curb upward pressure on the franc remained crucial for Switzerland. “We consider that our expansionary monetary policy remains necessary at present,” she said.

“The negative interest rates are a vital instrument at the moment for Switzerland. Why? Because it allows (us) to at least partly re-establish the traditional interest rate differential versus other countries.”

Although inflation was returning, it remained too early to say whether this meant a long-term end to deflation, she added.

“After two consecutive years of negative inflation, the inflation rate was back in positive territory in July at 0.3 percent,” Maechler told the Forum Economique Romand.

“But the inflation outlook stays low for 2017 and 2018 at around 0.3 percent. The message is similar: we’re headed in the right direction, but the situation remains fragile.”

If the oil price went down, for example, that would have a direct impact on prices in Switzerland, Maechler said.

The safe-haven franc has lost nearly 5 percent of its value since the start of July and is now trading close to its lowest level versus the euro since the SNB suddenly scrapped its limit on the franc’s value two and a half years ago. (Reporting by John Revill and Silke Koltrowitz; Editing by Michael Shields)