BLBG: SNB Unexpectedly Cuts Rates, Says Economy May Shrink (Update1)
By Elena Logutenkova and Joshua Gallu
Nov. 6 (Bloomberg) -- The Swiss central bank unexpectedly cut its main lending rate by 50 basis points and said the economy may contract next year.
The central bank, led by Jean-Pierre Roth, lowered its three-month Libor target to 2 percent today from 2.5 percent, it said in a faxed statement from Zurich. The SNB wasn't scheduled to decide on interest rates until Dec. 11. The Bank of England today cut its main interest rate by 150 basis points as policy makers tried to keep the economy from tipping into recession.
``The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters,'' the bank said. ``The economic slowdown, the decline in the price of oil and the appreciation of the Swiss franc are reinforcing the expected drop in inflation.''
Today's action is the bank's second inter-meeting cut in a month, as the financial market crisis causes stocks to plunge and forces governments to buy troubled assets. UBS AG, Switzerland's biggest bank, got a $59.2 billion aid package Oct. 16 after piling up the biggest losses of any European lender from the global credit crisis.
`Extraordinary Measures'
``Extraordinary times call for extraordinary measures,'' said Reto Huenerwadel, senior economist at UBS AG in Zurich. With other central banks acting aggressively, the Swiss franc ``would have gone through the roof'' if they hadn't acted.
The franc fell against the euro and dollar after the SNB's announcement. The Swiss currency weakened to 1.5022 per euro by 1:13 p.m. in Zurich. Against the dollar, the franc slipped to 1.1698 from 1.1580.
The financial market crisis is reverberating through the global economy, causing stocks to plunge and forcing governments to buy troubled assets and take equity in struggling banks. UBS AG, Switzerland's biggest bank, got a $59.2 billion aid package Oct. 16 after piling up the biggest losses of any European lender from the global credit crisis.
With investors shunning riskier assets and investing in so- called safe-havens, the Swiss franc has jumped more than 5 percent against the euro since Oct. 1. The pace of the franc's appreciation and higher money market rates are a ``big challenge'' for the central bank, Roth said in an interview with the Neue Zuercher Zeitung on Nov. 1.
To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Joshua Gallu in Zurich at jgallu@bloomberg.net
