SNB Holds Key Rate Near Zero

The Swiss central bank left its key interest rate near zero and signaled it will continue to counter an appreciation of the franc to ward off deflation., Bloomberg 9/17/2009 9:13:23 AM

The Swiss National Bank, led by Jean-Pierre Roth, left the three-month Libor target at 0.25 percent at today’s quarterly monetary policy assessment. The SNB also said it will keep buying corporate bonds if necessary to ease credit conditions.

Switzerland’s worst economic slump in three decades has been compounded by the buoyancy of the franc, which has fueled the risk of deflation by making imports cheaper. In March, the SNB started selling the franc to prop up consumer prices, which it predicts will fall 0.5 percent this year.

Switzerland’s status as a haven during times of turmoil buoyed the franc during the financial crisis even as its economy slumped and both UBS AG and Credit Suisse Group posted a combined $72 billion in losses and writedowns.

The Swiss economy, the eighth largest in Europe, has been contracting since the third quarter of last year as the global recession curbs demand for exports, which account for about half of Swiss gross domestic product. GDP dropped 0.3 percent in the second quarter after plunging 0.9 percent in the first.

The spread between the SNB target rate and the three-month Libor rate has narrowed to 5 basis points from 15 basis points in June, indicating banks are becoming more comfortable about lending to each other. The SNB sets a target range for Libor and generally tries to steer it toward the mid-point of the range.

SNB Holds Key Rate Near Zero