30 April 2004, 12:05  SNB's Roth - not yet time for Swiss rates to rise

The Swiss National Bank is not yet ready to raise interest rates amid the uncertain economic recovery and the breathing space afforded by the slack in the economy, the nation's top central banker said on Friday. Monetary policy had to remain expansive in an unstable economic environment, SNB Chairman Jean-Pierre Roth said in the text of a speech, adding, however, that the bank was aware that rates could not remain at near-zero levels forever. "We know that we must raise our interest rates, which are currently at a historic low, in order to maintain price stability when an economic recovery is confirmed," Roth told SNB shareholders at the central bank's annual general meeting. "We are of the opinion, however, that the time for this has not yet come," he added. "While the Swiss economy is showing modest growth again, unused capacity is still significant and international competition is high. Under these circumstances the risk of an overheating is slim," he said.
Roth also said that inflation prospects overall remained favourable as a result of the low capacity utilisation, the lack of a house-price bubble as experienced in the late 1980s and also the factors explaining monetary supply growth. "It is unlikely that in the coming months inflation will drop below zero again as in March," Roth said, adding a sharp fall in oil prices would be needed for this to happen again. He also said that the fears of deflation which nagged central banks around a year ago had since dissipated. "When we lowered rates in March 2003, our aim was to avoid deflation," he said. "We have achieved this aim." Roth struck a more dovish tone than recent comments from colleagues, saying the SNB was cautiously optimistic over the prospects for the Swiss economy. He said the output gap should soon stabilise and then close successively. "This development will however take time," he said. Domestic consumption would profit from the gradual improvement in the jobs market, he added. Roth suggested risks to the economic outlook were balanced. "Risks to the upside as to the downside are omnipresent," he said. "Therefore it cannot be ruled out that the international economy develops more strongly than expected." A rapid restocking of warehouses would speed the recovery up while any new political unrest could risk acting as a brake and potentially led to increased exchange rate volatility, he said.///

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