Swiss National Bank keeps policy loose, cuts inflation outlook

BERN, Switzerland (Reuters) - The Swiss National Bank kept its ultra-loose monetary policy in place on Thursday, citing the "fragile" exchange-rate situation and international tensions as reasons to maintain its expansive course into a fourth year.

"Surveys indicate that trade tensions have prompted companies to reassess their investment plans and value chains. As far as Brexit is concerned, uncertainty remains high following the postponement of the vote in the UK parliament. The tension surrounding Italy's fiscal policy also persists," SNB Chairman Thomas Jordan told a news conference.

"All these risks could lead to turbulence in the financial markets, jeopardize global economic growth, and also influence monetary policy."

The SNB kept its target range for the three-month London interbank offered rate (LIBOR) at -1.25 to -0.25 percent, as unanimously forecast by 32 economists polled by Reuters.

The central bank also kept in place the negative interest rate of -0.75 percent it charges on deposits held by commercial banks above a certain level, and said it remained ready to intervene in foreign-exchange markets if needed.

The SNB has used both measures to prevent appreciation of the Swiss franc, whose strength has posed problems for Switzerland's export-reliant economy.

"Overall, the Swiss franc is still highly valued, and the situation on the foreign exchange market continues to be fragile," it said.

The SNB does not need to raise interest rates to head off inflation in Switzerland; it forecasts inflation will be below 2 percent in 2018, 2019 and 2020.

For 2018, the SNB said it still expects inflation of 0.9 percent. It cut its forecast to 0.5 percent in 2019 from its 0.8 percent view in September, and to 1.0 percent in 2020 from the previous 1.2 percent.

"With the revision of the inflation forecasts, the SNB seems even more dovish than before. The normalization of monetary policy is not for now and may not happen for a few years," ING economist Charlotte de Montpellier said.

"It looks more and more as if the SNB is going Japanese and it will take a long time before the first rate hike. We do not expect any rate hike before March 2020 and it could be postponed even later," she added.

The SNB saw Swiss economic growth slowing to 1.5 percent next year from an estimated 2.5 percent in 2018.

The central bank is widely expected to wait until the European Central Bank starts raising its deposit rate - now -0.4 percent - before normalizing policy.

The ECB is due to update its staff projections on growth and inflation at its policy meeting later on Thursday.

(Reporting by Silke Koltrowitz, Angelika Gruber and John Revill; editing by Michael Shields, Larry King)

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