By Simon Kennedy and Joshua Gallu Nov. 20 (Bloomberg) -- Switzerland's central bank slashed its benchmark interest rate by an unprecedented percentage point after the economic growth outlook worsened. The Swiss National Bank reduced its target for the three- month Libor to 1 percent and promised a ``generous and flexible'' supply of Swiss francs. It's the third time the SNB has lowered rates since the beginning of October. Today's step is the biggest single cut the Zurich-based SNB has made since it began targeting the three-month Libor in 2000. ``It's a huge step and a big surprise,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``The global financial environment has considerably worsened over the past days. They'll probably keep rates on hold next month given the extent of today's step.'' The SNB gained room to act after pushing the three-month range for borrowing francs, or Libor, back within its target this week for the first time in two months. It predicted inflation will fall below 2 percent as soon as this year. After the announcement, the SNB offered 3-month and 6-month funding at 0.15 percent. World Worsening ``International economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year,'' the statement said. ``The SNB will continue to monitor closely the situation on the money and foreign exchange markets.'' The Swiss franc fell to its lowest level against the dollar since August 2007 after the announcement and dropped 0.8 percent to a one-month low of 1.5287 against the euro. ``To cut rates by that much in one go begs the question whether there's something we don't know,'' said Kenneth Broux, an economist at Lloyds TSB Group Plc in London. The International Monetary Fund predicts advanced economies including the U.S. and euro area will contract simultaneously next year for the first time since World War II. Federal Reserve Chairman Ben S. Bernanke, Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet have all signaled they're ready to cut interest rates further to stem the deepening economic slump. To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net

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