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UPDATE 1-SNB cuts interest rates in joint c'bank action

Wed, Oct 8 2008, 12:36 GMT
http://www.afxnews.com

ZURICH, Oct 8 (Reuters) - The Swiss National Bank cut interest rates for the first time in over five years on Wednesday as part of a coordinated rate cut by major central banks.

"The global financial crisis has intensified and is having a considerable impact on the international economy," the SNB said in a comment accompanying the joint statement from other major central banks.

(For details please double click on [ID:nNAT004445])

"The Swiss economy is also affected by these developments. Economic growth for 2009 will be weaker than expected at the last assessment. In view of the improved inflation outlook, as a result of the economic downturn and the low oil prices, the SNB is now able to loosen its monetary policy reins," it said.

The central bank said it lowered its target rate for the 3-month Swiss franc LIBOR by 25 basis points to 2.00-3.00 percent, aiming to bring the LIBOR down by 50 basis points from its current level to its new target of 2.50 percent.

The three-month LIBOR has risen above 3.00 percent in recent days despite the SNB's attempts to bring it down by lowering the rates in its daily offering of funds in the money market as the credit crisis intensified.

The central bank offered 3-month funding at 1.30 percent after the rate move.

In contrast to other central banks, the SNB focuses on the LIBOR -- a rate set by the market -- as the Swiss central bank considers it to be the relevant rate for the real economy as many credit contracts are based on LIBOR.

MORE CUTS

The Swiss franc dropped against the euro after the joint action and Swiss shares pared some of their earlier hefty losses with the hard-hit bank UBS rising 3 percent on the day.

Markets had expected a move by the SNB at its next regular review in December and are still pricing in more SNB rate cuts as the Swiss economy is losing steam fast, hit by slowing global demand and the deepening of the credit crisis.

"Clearly, the action has been spearheaded by recent sickness in the financial markets with the SNB judging that lesser risk on the inflation front justified a quick move to safeguard the growth outlook," Rajel Khambhaita from Informa Global Markets said.

"The tone of the statement suggests that the SNB will not shy away from further cuts if needed with good chances for another move at the December meeting -- if not 50 bp then at least another 25 basis points before the year is out."

The SNB had left its target rate for the 3-month Swiss franc LIBOR unchanged at 2.75 percent at its meeting in September as the central bank was still balancing the risks for the economy from the global credit crisis with high inflation rates.

Most economic indicators point to a sharp slowdown of the economy from the growth of 1.5 to 2.0 percent which the SNB expects for 2008. However, inflation has only retreated only slightly so far from the 15-year high of 3.1 percent hit in July.

For the SNB statement click on www.snb.ch

Keywords: SWISS SNB/

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