SNB to Stop Bond Purchases, Joining Central-Bank Exit

By Klaus Wille

Dec. 10 (Bloomberg) -- Switzerland’s central bank said it will stop purchases of corporate bonds as it joins other countries in starting to withdraw emergency measures.

The Swiss National Bank, which announced plans to buy bonds in March, also held the three-month Libor target at 0.25 percent, as expected by all 16 economists in a Bloomberg News survey. It will continue to “act decisively to prevent any excessive appreciation” in the Swiss franc, it said.

Central banks around the world have started withdrawing measures used to fight the worst global recession in more than six decades. While the Swiss economy returned to growth in the third quarter, SNB Chairman Jean-Pierre Roth said today that a “swift correction in monetary policy would be precipitate” as deflation risks remain.

“The interesting part was the first settings of an exit road map,” said Julien Manceaux, an economist at ING Group in Brussels. “The SNB did not rush to the exit door. Although all economic indicators have improved since the last meeting, it is certainly too early to act.”

The franc was little changed as of 10:45 a.m. in Zurich, at 1.5113 per euro from 1.5120 yesterday.

Roth said the franc has stayed “stable” against the euro since the SNB began intervening and that the central bank’s monetary policy since March “has been effective.”

Growth Forecast

Some central banks have already started unwinding their non-conventional policies. European Central Bank President Jean- Claude Trichet last week announced plans to scale back its emergency lending next year. Federal Reserve Chairman Ben S. Bernanke has promised a “smooth” withdrawal of stimulus in the U.S.

Swiss gross domestic product rose 0.3 percent in the three months through September, ending a year-long contraction, and data indicate the recovery is strengthening. The KOF leading indicator has risen for seven months and manufacturing has resumed expansion.

The SNB sees the economy expanding between 0.5 percent and 1 percent in 2010 after a contraction of about 1.5 percent this year. It previously forecast that the economy would shrink as much as 2 percent this year. It sees inflation averaging 0.5 percent in 2010 and 0.9 percent in 2011.

“Risks remain significant, and for this reason we are maintaining our expansionary monetary policy,” said Roth, chairing his last monetary policy meeting before Vice-Chairman Philipp Hildebrand takes over in January.“The legacy of the crisis still weighs heavily.”

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net.