Swiss Libor Rate Unchanged at 2.75%

Swiss National Bank chose to keep the national three-month Libor (interest rate) unchanged at 2.75% after it was increased by 0.25% back in September 2007. After this announcement Swiss franc gained a little against all other major currencies except the Japanese yen.

The reason to stop increasing the interest rates further came from two sides: first, Swiss National Bank (SNB) is expecting that GDP growth will be slowed down by the global instability — the fact that wasn’t foreseen in the September economy outlook; second, inflation rate is slowing down, which removes any fundamental base for another rate hike.

With the inflation rate at the expected 0.7% rate for 2007, SNB now has nothing to worry about — over-regulating something that is working fine is not a job for central banks:

The expected downturn in economic growth will result in an improved inflation outlook for 2009 and 2010. However, rising oil prices will temporarily push up inflation in the first half of 2008. Assuming that the three-month Libor remains unchanged at 2.75%, the National Bank expects an average annual inflation rate of 0.7% in 2007, 1.7% in 2008 and 1.5% in 2009. After having passed its peak in the first half of 2008, inflation is likely to stabilise below 2%.

This rate decision  wasn’t a surprise for analysts and helped CHF to gain against other currencies. Only Japanese yen, which is growing after the Nikkei Index fell down by more than 2% today, showed more power against franc, gaining almost 0.5% against Swiss currency.

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