RTTNews - Thursday, the Swiss National Bank or SNB left its key interest rate unchanged and said it will take firm action to prevent the appreciation of the Swiss franc as the country still faces deflation risks.

The central bank left its three-month libor target range unchanged at 0%-0.75%, as expected. In other words, the bank kept its key interest rate unchanged at 0.25%.

Reacting to the announcement, the Swiss currency fell to a 3-day low of 1.5128 against euro. Thereafter, it recovered and soared to a near 5-week high of 1.5019 by about 4:30 am ET.

In its previous rate-setting session, the central bank had lowered the three-month libor range by 25 basis points to 0%-0.75% from the previous range of 0%-1%. The SNB had also implemented other aggressive monetary easing measures that include buying foreign currencies to prevent the further appreciation of the Swiss franc.

Today, the bank said in a statement that it will continue supplying liquidity and purchasing Swiss franc bonds with the aim of reducing risk premia on long-term bonds issued by private sector borrowers.

The central bank noted that despite the emergence of some encouraging signs, the global economic situation remains unfavorable and further economic deterioration cannot be ruled out. In Switzerland, the economic situation is difficult; the risk of deflation has abated, but still remains a concern.

The apex bank left its growth forecast for 2009 untouched this time. It expects real GDP to fall by between 2.5% and 3%. Real GDP will continue decreasing throughout this year, although the rate of decline will ease off and will gradually be transformed into rising rates during the course of next year, the bank said.

Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank said, It is to be hoped that the signs of improvement observed abroad will be gradually transmitted to the Swiss economy. The bank's Vice-Chairman Philipp Hildebrand also shared the same view.

Roth added that the decline in exports is likely to slow down from the second quarter. However, weakening domestic demands and the reduction in inventory levels would keep growth figures negative for next few quarters.

A day earlier, the State Secretariat for Economic Affairs or SECO had lowered its growth outlook for 2009 to show a contraction of 2.7% this year and by 0.4% next year. That was down from its previous forecast of a 2.2% contraction for this year and a slight recovery of 0.1% for 2010.

Also on Wednesday, the government had announced new stimulus measures worth 400 million Swiss francs to fight rising unemployment. It brought overall measures of the third economic package to 750 million francs. The new measures include temporary employment in non-profit organizations, subsidies for training programmes and internships in government institutions.

The SNB also left its inflation forecast unchanged from the previous forecast. Consumer prices are forecast to fall 0.5% this year mainly due to fall in the price of commodities since 2008. The trend is expected to reverse from the beginning of the next year due to the effect of monetary measures implemented till now. Inflation will become slightly positive, rising to 0.4% in 2010 and 0.3% in 2011. The SECO inflation forecast for 2009 matches those with the SNB's. The government sees inflation at 0.9% in 2010.

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