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Central bank maintains low rates and franc floor

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Central bank maintains low rates and franc floor
Photo: Malcolm Curtis/The Local
18:04 CET+01:00
Switzerland's central bank on Thursday kept its key interest rate unchanged and restated its longstanding pledge to prevent the Swiss franc from gaining too much value.

The Swiss National Bank (SNB) held its target range for the franc's three-month London interbank offered rate, known as the Libor rate, at between zero and 0.25 percent, a bank spokesman said in a conference call with journalists.
   
The bank also reiterated that it was maintaining an exchange-rate floor of 
1.20 francs to the euro.
   
SNB introduced the floor in September 2011 as a strengthening franc was 
creating headaches for exporters, whose margins were eroded by unfavourable exchange rates.
   
The Swiss franc is traditionally seen as safe haven by the markets in tough 
times, and investors unsettled by the eurozone debt crisis and uncertain global economic climate flocked to the currency, driving up its value.
   
The ongoing crisis in Ukraine has also led to intermittent spikes in the 
value of the franc, pushing it closer to the 1.20 limit.
   
"The minimum exchange rate continues to be the right tool to avoid an 
undesirable tightening of monetary conditions in the event of renewed upward pressure on the Swiss franc," the SNB said.
   
It stressed it was prepared to purchase "foreign currency in unlimited 
quantities and to take further measures" to defend the floor.
   
The SNB also maintained its forecast for economic growth in Switzerland 
this year, saying it still expects Switzerland's gross domestic product to rise two percent in 2014.
   
That forecast is slightly lower than the 2.2-percent growth recently 
forecast by the Swiss government, which expects an anticipated pick-up in exports this year to boost the growth rate.
   
The SNB also said the "moderate recovery of the global economy" was 
continuing, but warned that "there are still substantial risks attached to the global economic recovery."
   
A decline in inflation in most advanced economies had for instance 
"increased uncertainty regarding the future path of monetary policy in the major currency areas," it said.
   
The central bank itself revised down its inflation forecast, saying on 
Thursday it now expects prices in Switzerland to stagnate completely this year instead of the rise by 0.2 percent predicted in December.
   
For next year, inflation is now expected to tick in at just 0.4 percent, 
down from a previously forecast 0.6 percent, while prices should swell a full one percent in 2016, the bank said.

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