SNB Leaves Benchmark Rate Unchanged


The Swiss central bank signaled it's in no rush to raise borrowing costs, saying the acceleration in inflation is ``transitory'' because economic growth is slowing.

The Swiss National Bank's Governing Board, led by Jean-Pierre Roth, left the three-month Libor target at a six-year high of 2.75 percent for a third consecutive quarter.

Faltering growth has limited the SNB's room to raise borrowing costs and counter the fastest inflation in 15 years. Soaring oil and food prices have prompted central banks from India to North America to shift their attention from fighting the global credit squeeze to curbing inflation.

The franc declined against all 16 of the other major currencies. Against the euro, the franc dropped 0.4 percent to 1.6164 by 12:36 p.m. in Zurich, from 1.6098 yesterday. It also fell 0.7 percent to 1.0436 per dollar, from 1.0361.

The SNB, which aims to keep inflation below 2 percent, predicts the rate will decline to 1.7 percent in 2009 and 1.3 percent in 2010 from 2.7 percent this year if it keeps its key rate unchanged.

The bank ``can afford to do so for the time being,'' Roth said at a press conference in Geneva. ``There is enough reason to suggest that the current inflationary trend is of a transitory nature.''

Switzerland's economy is losing momentum as the U.S. housing slump hurts earnings at banks including UBS AG and Credit Suisse Group. A possible recession in the U.S. and cooling European economy is also eroding export growth. Swiss economic expansion slowed to 0.3 percent in the first quarter, the weakest pace in more than three years, and the country's leading economic indicators fell for a 10th month in May.

Slowing growth may weaken demand, relieving some pressure on prices. At the same time, the franc's 19 percent gain against the dollar in the past year is helping cushion the blow of higher oil and food prices.

Emerging economies are still boosting purchases of Swiss industrial products as they invest in infrastructure. Zurich-based ABB Ltd., the world's largest builder of electricity networks, said first-quarter profit soared 87 percent as China and India increased investment in power stations and grids.

Swiss inflation accelerated to 2.9 percent last month, remaining above the SNB's 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.


TradingEconomics.com, Bloomberg
6/20/2008 7:15:20 AM