Swiss consumer prices in March showed the biggest annual fall since December 1959 amid central bank's efforts to fight deflation risks and prevent further strengthening of the franc.

Friday, the Federal Statistical Office said consumer prices dropped 0.4% in March from the previous year, faster than 0.1% fall expected by economists. This was the first decline in five years and largest since December 1959, when prices slid 0.6%. In February, consumer prices rose 0.2%.

Month-on-month, consumer prices were down 0.3% in March, following a 0.2% rise in February. Economists had expected prices to stay stable.

Annual fall in March was largely driven by housing and energy, transport and communications. Housing and energy prices dipped 0.9%, while cost of transportation slid 4.8%.

The Swiss National Bank estimates inflation to remain close to zero in 2010 and 2011 and sees negative number for 2009. The central bank forecasts the economy to shrink up to 3% this year.

In March, the SNB lowered the target range for the three-month Libor by 25 basis points, narrowing it to 0%-0.75% from the previous 0%-1%. The SNB also took other aggressive monetary easing measures that include buying foreign currencies to prevent further appreciation of the Swiss franc.

Yesterday, the SNB's Vice President, Philipp Hildebrand said the central bank will continue to take all measures to prevent further strengthening of the Swiss franc and reduce deflationary pressures. It's about avoiding deflation by all means, Hildebrand said.

Given the severe recession of the Swiss economy and virtually zero interest rate, the central bank's foreign-exchange interventions are a complementary emergency instrument to combat the threat of deflation.

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