SNB Leaves Rate Unchanged

The Swiss central bank left its main lending rate unchanged for the first time in two years today as the U.S. housing crisis threatens to slow the global economy.

The Swiss National Bank's Governing Board led by Jean- Pierre Roth left the three-month Libor target at 2.75 percent today. That's the first policy meeting since Dec. 2005 that hasn't resulted in a rate increase.

Record defaults on U.S. subprime mortgages are pushing up credit costs worldwide and dimming the outlook for growth in Europe and the U.S. While the Swiss economy is in ``very good shape,'' growth will slow to about 2 percent in 2008 from 2.5 percent this year and the financial market upheaval ``may jeopardize this relatively optimistic scenario,'' the bank said.

Zurich-based UBS said Dec. 10 it will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank. Europe's largest bank by assets may post the first full-year loss since it was created a decade ago.

The franc has been pushed lower partly as investors put on carry trades, borrowing at Switzerland's main lending rate and converting the proceeds into a currency they can lend out for a higher return. Swiss borrowing costs are still among the lowest in the world after Japan's 0.5 percent main lending rate.

So far, the U.S. housing recession is showing few signs of feeding further into the Swiss economy. The jobless rate remained at a five-year low of 2.6 percent in November and manufacturing growth unexpectedly accelerated, while leading economic indicators fell for a fourth month.

The fastest rate the Swiss economy can expand without pushing up inflation, the so-called potential rate, is about 2 percent, according to the Organization for Economic Cooperation and Development in Paris. The Swiss economy is set for its fourth straight year of above potential growth in 2007.

SNB Leaves Rate Unchanged, Bloomberg
12/13/2007 7:20:43 AM