31 October 2001, 09:39  SNB Gehrig: SWFR To Play Key Role In Swiss 2002 GDP

FRANKFURT (MktNews) - The Swiss National Bank will pay close attention to the franc exchange rate in deciding on its monetary policy, because the exchange rate will play a key role in the Swiss growth rate next year, Swiss National Bank Vice President Bruno Gehrig said Tuesday. Gehrig, in the text of a speech to a Swiss-German business group here, said the Swiss economy is expected to grow "on the order of one to barely two percent" in 2002 after growth of between 1% and 2% this year. "In particular, the course of the exchange rate will have a special importance, as always in a phase of increased uncertainty," Gehrig said. "It can notably influence basic monetary conditions positively or negatively," he noted. "In any case, in our analysis and design of monetary policy we will give the necessary attention to the course of the franc", he said, without making any direct comments about the SNB's views on the current franc exchange. Gehrig noted that the SNB's most recent rate cut, by 50 basis points on September 24 ,was due entirely to the "exchange rate shock caused by extraordinary factors." Just before the September 24 rate cut, the euro fell to under SFR1.45 from SFR1.51. "In the meantime, the exchange rate of the euro has stabilized somewhat at around SFR1.48", Gehrig said. "If this is primarily the result of our measures or more a consequence of a general normalization is hard to say", he added. While there has been a "marked worsening" of the global economy and sharpened uncertainties after the September 11 terrorist attacks, Gehrig denied that economies on the European continent are currently in recession. While recent Swiss data have shown a trend toward an economic slowdown, the majority of economic indicators remain, as before, at a "relatively good level," he added. The Swiss economy is being helped by the continued favorable state of the labor market, which has supported private consumption and consumer confidence. In addition, the crash of the technology and communication sectors was less pronounced in Switzerland than in other countries because of structural advantages. In other comments, Gehrig also pointed to the flexibility of the SNB's LIBOR target range. The SNB usually aimed at the middle of the target range but was also able to target any rate within the band, Gehrig noted. "We can therefore take into account temporary problems at the money market without signalling a change in monetary policy. This flexibility seems to us, in a small open economy as imperative", Gehrig said.

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