(RTTNews) - Thursday, the Swiss central bank is likely to hold its key interest rate and decide to continue the current monetary measures as deflationary risks loom.

In its previous rate setting session in June, the Swiss National Bank left its three-month libor target range unchanged at 0%-0.75%. In effect, the bank kept its key interest rate unchanged at 0.25%.

In the June session, the central bank also said it will continue supplying liquidity and purchasing Swiss franc bonds with the aim of reducing risk premia on long-term bonds issued by private sector borrowers.

The Governing Board, led by Chairman Jean-Pierre Roth, is expected to announce the decision at 8.00am ET.

Switzerland’s gross domestic product fell 0.3% sequentially in the second quarter after a 0.9% decline in the first three months of the year. The economy shrunk for the fourth straight quarter.

The strong franc played the key role in leading the economy into a recession. It also made imports cheaper, triggering deflationary risks. Year-on-year, producer and import prices were down 5.5% in August with the pace of decline slowing from 6.1% in July.

Switzerland’s consumer price index fell 0.8% year-on-year in August after falling 1.2% in July, the Federal Statistical Office said on September 4. Consumer prices have been falling since March 2009.

In March, the central bank started buying foreign currencies and corporate bonds to prevent further appreciation of the franc. The currency appreciated strongly amid the global crisis. After the central bank intervention on March 12, the currency weakened.

In the June meeting, the SNB left the Swiss growth forecast for 2009 untouched. The bank had said the real GDP fall would be between 2.5% and 3%. The central bank expects inflation at negative 0.5% this year and to move to 0.4% in 2010 and to 0.3% in 2011.

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Posted in Categories: Economy, Releases, Switzerland.

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