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SNB seen sticking with franc cap, rates policy at quarterly meet
June 20, 2013 / 12:07 AM / 4 years ago

SNB seen sticking with franc cap, rates policy at quarterly meet

* SNB makes policy announcement at 0730 GMT

* Bank expected to leave current policy unchanged

By Alice Baghdjian

ZURICH, June 20 (Reuters) - The Swiss National Bank will reaffirm its commitment to defend its lid on the safe-haven franc on Thursday, as a weaker currency and a recovering economy gives the bank some breathing space.

The SNB is also expected to leave the target band for the Swiss franc LIBOR at 0 to 0.25 percent when the bank makes its policy announcement at 0730 GMT, followed by a media conference with board members.

With price pressures in Switzerland still low, markets will be looking for clues as to how the SNB intends to balance the competing needs of what it views as an overvalued franc and an overheating housing market.

Raising interest rates to rein in a recent surge household lending would clash with the SNB’s efforts to keep a lid on the franc, which it has capped at 1.20 per euro since September 2011 to stave off deflation and a recession.

“The interest rate policy of the SNB needs to decide which of these evils to combat,” said analysts at St Galler Kantonalbank. “At the moment it’s the franc that carries greater weight. The SNB will therefore leave its monetary policy unchanged.”

Though the franc weakened against the euro last month as fears over a worsening of the euro zone crisis faded and is expected to fall further, the SNB has stressed the currency remains overvalued.

Out of 23 economists polled by Reuters on the topic, 12 saw the cap being removed sometime in 2014, with the others expecting it to stay well into 2015 or beyond.

With the cap expected to remain in place, focus has turned to any talk of alternative measures that could be taken by the SNB in the future.

Out of 26 economists in the poll, 14 said Swiss officials would not take further measures to deter safe-haven flows if the euro zone crisis worsens. Of those who expected further measures a charge on sight deposits - the amount of cash commercial banks hold with the SNB - was seen the most likely scenario.

SNB Chairman Thomas Jordan said last month the bank did not rule out negative interest rates and could adjust the cap on the franc if necessary though policymakers have said it is not designed for fine-tuning.

“We attribute a very small likelihood to the introduction of negative interest rates (or any other charge) on the SNB’s excess reserves,” said Reto Huenerwadel, economist at UBS, but said this would most likely follow comparable moves by other central banks, namely the European Central Bank.

“Apart from the fact that the SNB could have taken this route for some time already and deliberately refrained from doing so, it is the uncertainty related to such a measure that prevents them from taking it independently.” (Editing by Toby Chopra)

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