SNB Holds Rate at Seven-Year High

The Swiss central bank kept its main lending rate at a seven-year high today to ensure inflation will slow below its 2 percent limit.

The SNB has left its target interest rate unchanged since September 2007 after record defaults on U.S. home mortgages led to losses at the country's two biggest banks, UBS AG and Credit Suisse Group. The Swiss financial industry accounts for about 15 percent of the economy and contributed about 50 percent to growth in recent years.

Financial-market fallout from the U.S. housing crisis has hammered banks' profits and is a drag on economic growth. The SNB joined central banks around the globe today to provide extra money to calm markets spooked by the collapse of Lehman Brothers Holdings Inc. At the same time, the 35 percent drop in the price of oil since mid-July may give the SNB room to lower borrowing costs this year without sparking inflation.

The central bank predicts inflation will decline to 1.9 percent in 2009 and 1.3 percent in 2010 from 2.7 percent this year if it keeps its key rate unchanged.

Switzerland's leading economic indicators fell to the lowest level in five years in August and a measure of manufacturing growth slid to a three-year low. At the same time, price increases have eroded households' purchasing power and threaten consumption, the largest part of the economy.

SNB Holds Rate at Seven-Year High,
9/18/2008 5:41:58 AM