SNB Leaves Rate Unchanged

The Swiss central bank left its main lending rate unchanged at a six-year high as global economic growth waned and inflation accelerated., Bloomberg 3/13/2008 7:11:11 AM

The Swiss National Bank's Governing Board led by Jean-Pierre Roth kept the three-month Libor target at 2.75 percent. That's the second consecutive time the bank has left borrowing costs unchanged after raising them every quarter for two years.

The Swiss economy has so far withstood a slowdown among its main trading partners in Europe and losses in the financial industry as the U.S. housing crisis rattled global credit markets. That resilience gives the SNB more leeway to fight the fastest inflation in 14 years.

The bank revised its 2008 growth forecast to between 1.5 percent and 2 percent from an estimate of ``about'' 2 percent made in December. It raised its inflation forecast for this year to 2 percent from 1.7 percent and cut the 2009 estimate to 1.4 percent from 1.5 percent.

The franc strengthened to 1.5731 against the euro at 2:16 p.m. in Zurich from 1.5778 yesterday.

The economy expanded at the fastest pace in more than two years in the fourth quarter even as growth slowed in export markets including Germany and the U.S.

While the financial industry makes up about 15 percent of the Swiss economy, it has contributed about 50 percent to growth in recent years. With defaults on U.S. mortgages hurting lenders' earnings, the stimulus from banks may weaken.

The SNB will later this month join the Fed, ECB, Bank of England and Bank of Canada for a third time since December in a concerted action to break the logjam in money markets that has pushed up borrowing costs for lenders worldwide.

The Swiss economy expanded 3.1 percent last year, compared with 3.2 percent in 2006. The fastest rate Switzerland can sustain without pushing up inflation, the so-called potential rate, is about 1.9 percent, according to the Organization for Economic Cooperation and Development in Paris.

Inflation was at 2.4 percent for a second month in February. Crude oil, which has gained almost 90 percent in the past year, breached $110 for the first time yesterday and the price of corn and wheat has soared to records. Oil traded at $109.64 a barrel at 11:24 a.m. in Zurich.



SNB Leaves Rate Unchanged