SNB news update

FRANKFURT (MNI) - It is too early yet for the Swiss National Bank

to normalize its monetary policy and the bank will stick to its low

interest rate policy as well as its efforts to keep the franc from

appreciating SNB board member Thomas Jordan said in an interview

published Tuesday afternoon.

Asked by Swiss financial daily Handelszeitung whether the SNB was

preparing to normalize its monetary policy Jordan responded: "It is

still too early for that. The economic environment and the inflationary

outlook do not yet permit us to consider a normalization of monetary

policy."

He continued: "At the moment there are no indications that we need

to consider a change of monetary policy. We will stick for the time

being to our de facto zero interest rate policy as well as to our

extraordinary measures against an appreciation of the franc."

Jordan also warned that one should not assume that current low

interest rates are the norm.

"One should not forget that the interest rate could suddenly be

significantly higher" he said adding that households companies and

banks must act in a way that allows them to benefit from low interest

rates today without creating medium-term stability problems.

The SNB will continue to buy both covered and corporate bonds so as

to prevent a fresh rise of risk premia. "We will remain active" Jordan

said. "The time to stop or put a term on these measures has not come

yet."

"We do not make known our threshold for intervention" Jordan said

when pressed about the point at which the SNB intervenes to stop an

appreciation of the franc.

Further pushed as to whether the bank intervenes as soon as the

euro approaches Sfr 1.50 Jordan insisted "we decide situationally if

we want to intervene. The market here has up to now understood our

strategy well."

Swiss GDP is likely to contract by 2.5% to 3.0% in 2009 Jordan

said adding that the path to recovery will be slow.

"In mid-2010 Swiss GDP should return to positive territory. In the

first half we are likely still to see negative growth rates" Jordan

said. He also warned that one should not expect to see pre-crisis growth

rates for some time.

"We still cannot dismiss deflationary risks in Switzerland" Jordan

insisted. He explained that risks could emerge "if the world economy

does not recover as it should or if the franc were to strongly

appreciate."

Despite Switzerland`s expansive monetary policy "we consider

inflation risks in Switzerland to be low presently and also in the

medium-term" he said.

Nevertheless "we cannot completely exclude this risk. The

normalization of monetary policy will be a very difficult tightrope

walk. We will however do everything to secure price stability in

Switzerland in the future as well" he assured.

Jordan warned that some inflationary pressure could be imported.

"In certain countries inflationary risks are indeed clearly greater

than [in Switzerland]...There could be a certain inflationary pressure

coming from abroad."

Asked what would prompt the SNB to tighten its monetary policy

stance Jordan said that inflation forecasts exceeding the central

bank`s price stability target would be one motivation. "This is not the

case today."

Another reason to tighten monetary policy would be too low interest

rates distorting the Swiss economy Jordan said though he dismissed any

such tendency at the moment.

The inflationary fears of many investors in Switzerland were

exaggerated.

"For businesses it has certainly not become easier [to obtain

credit] but in general we do not have a credit crunch in Switzerland"

Jordan said.