Swiss Franc Declines

The Swiss franc declined against the euro and dollar after the central bank left its main interest rate unchanged and signaled inflation is under control.

The franc slipped versus all 16 of the other major currencies after the Swiss National Bank kept its three-month Libor target at 2.75 percent, as predicted by 16 of 25 economists surveyed by Bloomberg News. The currency extended its decline after SNB President Jean-Pierre Roth said inflation is likely to fall back below the bank's 2 percent target limit.

Against the euro, the franc dropped 0.7 percent to 1.6206 by 5:12 p.m. in Zurich, from 1.6097 yesterday. It also fell 1 percent to 1.0460 per dollar, from 1.0361.

The Swiss economy grew 0.3 percent in the first quarter, the weakest pace in more than three years. The country's leading economic indicators fell for a 10th month in May, a sign expansion may continue to ease in the coming six months.

Record oil prices are fueling the fastest inflation in 15 years, leaving the SNB in an ``uncomfortable situation,'' Vice President Philipp Hildebrand said on May 22.

Swiss inflation accelerated to 2.9 percent last month, remaining above the SNB's 2 percent ceiling for a fifth month. Price increases in the 15-nation euro area accelerated to 3.7 percent in May, the fastest in 16 years.

The Zurich-based SNB predicts inflation will slow to 1.7 percent in 2009 and 1.3 percent in 2010, from 2.7 percent this year, if it keeps its key rate on hold. ``After all, there is enough reason to suggest the current inflationary trend is of a transitory nature,'' Roth said at a press conference in Geneva after the rate decision.

European Central Bank President Jean-Claude Trichet said June 5 the bank may raise the 4 percent main refinancing rate by a quarter-percentage point next month to combat inflation.

Swiss Franc Declines, Bloomberg
6/20/2008 7:18:27 AM