SNB: To Enforce Sfr FX Cap With 'Utmost Determination'

-- Keeps Three-Month Libor Target Rates At 0.00-0.25% FRANKFURT

(MNI) - The Swiss National Bank will continue to enforce the

minimum exchange rate of Sfr 1.20 per euro with the "utmost

determination" and to target a three-month Libor rate of

0.00-0.25% as the economic outlooks brightens, the central bank

said on Thursday. The bank said "it is prepared to buy foreign

currency in unlimited quantities" and "to take further measures

at any time if the economic outlook and the risk of deflation so

require." The central bank will continue to maintain liquidity on

the money market at an exceptionally high level and keep the

target range for the three-month Libor unchanged at 0.00-0.25%,

but dropped the explicit reference to targeting rates as close to

zero as possible in the month's statement. The SNB reiterated

that even at its current rate the Swiss franc is still high and

is expected to weaken over time. The central bank had introduced

the currency cap on September 6 to counter deflationary pressures

and today further slashed its inflation forecasts. For this year,

forecasts were cut to -0.6% % from -0.3% forecast in December and

to +0.3% from +0.4% for 2013. The first inflation projection for

2014 sees consumer prices rising by 0.6%. "Last summer's

appreciation of the Swiss franc had a stronger dampening effect

on prices than anticipated. In the longer term, inflation will be

lowered by the worsening growth outlook for the euro area and the

continuing high valuation of the Swiss franc," the SNB said.

Recent data suggest that downward pressures might be receding.

Monthly consumer prices changes moved into positive territory in

February for the first time in five months. Pipeline pressures

show import and producer prices have begun rising and the recent

rise in global energy prices has yet to feed trough. The

improving economic outlook may also help to counter downward

price pressures. The SNB raised its 2012 GDP forecast of +0.5% to

"around +1.0%". "While the high value of the Swiss franc

continues to present enormous challenges to the economy, the

minimum exchange rate is having an impact. It has reduced

exchange rate volatility and given business leaders a better

basis for planning," the bank said. At the same time, the SNB

stepped up its warning about growing signs of imbalances on the

Swiss mortgage and real estate market for residential property.

"Should these imbalances increase further, this could lead to

considerable risks to financial stability," it said. The Swiss

government earlier on Thursday hiked its 2012 GDP forecast to

+0.8% from +0.5% and said the economy is likely to have reached

its trough. The Swiss ZEW economic expectations indicator

improved significantly in February for the third consecutive

month, ZEW said Wednesday. The Swiss central bank remained

cautious on the global economic outlook. "The situation on the

financial markets has eased somewhat recently. Uncertainty

remains very high, however. It is unclear whether the advances in

solving the European sovereign debt crisis will succeed in

defusing the situation permanently," it said. "Moreover, there is

a risk that geopolitical tensions will lead to a further rise in

the price of oil." --Frankfurt Bureau tel.: +49-69-720 142,

email: jtreeck@marketnews.com