SNB holds franc peg at 1.20 to the euro

The Swiss National Bank has held its cap on the franc at 1.20 to the euro, even as it acknowledged economic growth would continue to weaken into 2012.

The bank, which has been under pressure by manufacturers to increase the peg on the franc to as much as 1.40 against the euro, also held its target interest rate at 0–0.25 per cent.

“Even at the current rate, the Swiss franc is still high and should continue to weaken over time,” the bank said in its December monetary policy assessment on Thursday. “The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require.”

The bank said economic growth in Switzerland declined in the third quarter despite the global economy having made grounds. It said the appreciation of the franc over the summer was “weighing heavily” on the Swiss economy, and predicted gross domestic product (GDP) growth for 2011 would come in at between 1.5 and two per cent.

The bank also warned that an escalation of Europe’s sovereign debt crisis could not be ruled out.

“This would have grave consequences for the international financial system. Moreover, given our country’s close relations with the euro areas, Switzerland’s economic prospects are highly dependent on how the crisis develops,” the bank said as it predicted GDP growth would come in at 0.5 per cent in 2012.