Zurich, March 19 (Bloomberg) -- The Swiss National Bank is set to leaveinterest rates unchanged on Thursday, amid few signs the economy willexpand at a lower rate than forecast by the bank in December. Five of seven economists surveyed by Bloomberg News expect the banknot to change its monetary policy for the second quarter. The SNB willreview its inflation forecast on Thursday, at its first quarterly meeting of theyear. A decision about interest rates is expected at around 2 p.m. Swisstime. ``Swiss growth is robust and doesn't need a stimulus from the rate front,''said Janwillem Acket, chief economist at Bank Julius Baer & Co. The SNB -- together with the European Central Bank -- is one of the fewmajor central banks not to have cut borrowing costs so far this year. Itargues that, unlike the U.S. economy, Europe's seventh biggest economyisn't slowing enough to warrant such a step. In December, the bank said itexpected growth to slow to about 2.2 percent this year, from 3.4 percent in2000. Slowing growth rates, few signs of rising inflation and expectations thatslower U.S. growth may also impact on the Swiss economy, suggest thebank will cut rates at some point. Most economists expect the SNB to cutbetween 25 and 50 basis points before the end of the first half of 2001. ``I think they will cut rates sometime before the summer,'' said BernardLambert, an economist at Pictet & Cie., who thinks the bank won't touchrates Thursday.
Slowing Growth
Having grown at above 4 percent for three quarter through March 2000, theSwiss economy slowed in the last three quarters of 2000. Gross domesticproduct, the total of goods and services produced, grew an annualized 1.8percent in the fourth quarter of last year. Still, while the increase in spending by companies on construction and byconsumers eased, export growth accelerated to 7.1 percent from the third-quarter's 5.7 percent. Switzerland, with a home market of 7.2 million, isone of the most export- dependent countries in Europe. Consumer confidence, a gauge of people's expectations about theirpersonal finances and prospects for the whole economy, rose to a 12-yearhigh January and the unemployment rate in February fell for the first timesince September. The country has a lower jobless rate than any memberstate of the European Union. ``I don't really believe there will be an interest rate cut in Switzerland,'' saidLeo Steiner, chief executive of Komax Holding AG, the Swiss-basedlargest maker of wire-processing machines. ``The SNB won't do anythingthat isn't in line with the ECB.''
European Rates
The ECB last week left its benchmark interest rate unchanged at 4.75percent, on signs of rising prices. The U.S. Federal Reserve bank isexpected to cut its benchmark interest rate at least half a percentage pointtomorrow to spur growth. Switzerland isn't a member of the European Union and hasn't adopted theeuro as its currency. Still, the SNB is keen to keep the exchange ratestable, as the EU takes about two-thirds of Swiss exports. The franc lost1.1 percent against the euro so far this year, while dropping 5.9 percentagainst the dollar. Swiss investors profit from the lowest borrowing costs amongst Europeancountries, offsetting some of the effects of high prices and wages. The 10-year government bond yielded 3.32 percent in Switzerland today, 136 basispoints less than the German equivalent. Economists who see no need for an immediate interest rate cut took heartfrom an interview in a Sunday paper by the SNB's President Jean-PierreRoth. ``On the whole, the picture matches our expectations, and we areright with our monetary policy,'' Roth told SonntagsZeitung. The Swiss situation differs from the one in the U.S., he said. The SNB hadto gear its interest rate policy to the needs of the Swiss economy, and notlet the Federal Reserve's moves dictate policy.
Low Inflation
Some economists still expect the central bank to cut rates, arguing thatthe lower than expected inflation rates of January and February warranted arevision of the bank's inflation outlook and as a consequence theadjustment of rates. ``The need to adjust the inflation forecast remains, which is why they willlower the target range by 25 basis points,'' said Daniel Scheibler, chiefeconomist at Bank Sarasin & Cie. In December, the bank said it expected consumer price inflation of about2.1 percent this year, up from 1.6 percent last year and 0.8 percent in1999. However, inflation slowed twice so far this year, to the surprise ofeconomists. The annual rate of inflation declined to 0.8 percent in February, from 1.3percent in January and a peak of 1.9 percent in November, the governmenthas reported. The Swiss National Bank operates a target range for its benchmark 3-month Libor rate, which is set daily by market participants in London. Ituses repurchase agreements to steer the Libor with the range, whichspans one percentage point. It currently stands at 3 to 4 percent. Repos have changed little so far this year. The first overnight contractoffered this year on Jan. 4 yielded 3.25 percent. Last week, the overnightcontract stood at 3.36 percent. The 3-month Libor last week declined to3.42 percent Friday from 3.49 percent Monday. The Swiss central bankers did away with setting money supply targets atthe end of 1999, switching to an inflation outlook as the core tool for settingmonetary policy. Price stability, the main objective of its policy, isconsidered attained as long as inflation didn't breach 2 percent.