UPDATE 2-SNB can tighten soon if no more shocks - IMF
* IMF sees 2011 growth of 2.4 pct, 2012 of 1.8 pct
* Domestic demand strong, exports grow despite franc
* Swiss should clarify regulatory mandates of SNB, FINMA
* IMF warns against weakening "too big to fail" rules
(Adds IMF statement, comments on interventions)
By Emma Thomasson
ZURICH, March 28 (Reuters) - The Swiss National Bank should be able to hike interest rates soon barring any more shocks as the country's economic recovery is broadly based, the International Monetary Fund said on Monday.
"Absent significant shocks, the monetary authorities should be in a position to tighten in the near term," the IMF said in a statement at the end of a regular visit to Switzerland.
At its quarterly monetary policy meeting earlier this month, the SNB kept interest rates ultra-low despite an overall improved outlook for the economy, citing risks from Europe's debt crisis and the Japan disaster. [ID:nLDE72F1D8]
But the central bank dropped any reference to deflation risks in its statement and raised its growth forecast, which economists said opened the door for rate hikes later this year although the record-high Swiss franc remains an obstacle.
The IMF forecast Swiss economic growth of 2.4 percent this year, slipping to 1.8 percent next year as exports are dampened by the strong franc, with risks mainly from geopolitical developments and possible continued tension in the euro zone.
"Switzerland is experiencing a strong post crisis recovery -- despite a marked exchange rate appreciation," the IMF said.
"Domestic demand has been supported by sound balance sheets, low interest rates, a rise in employment and immigration, while exports have picked up as a result of the rebound in world demand and in spite of the Swiss franc appreciation."
The SNB raised its 2011 growth outlook this month to around 2.0 percent from around 1.5 percent. The economy grew by 2.6 percent last year.
STRONG CURRENCY ALIGNED WITH FUNDAMENTALS
The IMF advised the SNB to give priority to strengthening its capital cover -- hard hit by losses run up last year in ill-fated interventions to cap the franc's rise -- rather than paying dividends to Swiss national and state governments.
It also said any fresh SNB interventions should be limited to smoothing disorderly movements of the exchange rate.
"While the Swiss franc is on the high side in a historical perspective, continuing robust trade performance and large current account surpluses suggest that the currency is still broadly aligned with medium-term macroeconomic fundamentals."
The IMF said draft "too big to fail" regulation would be key in limiting the risks posed by Switzerland's biggest banks -- UBS (UBSN.VX) and Credit Suisse (CSGN.VX) -- and warned against allowing too much flexibility in tough capital requirements.
The strict Swiss proposals are due to come before parliament later this year but are expected to face a bumpy ride ahead of national elections. [ID:nLDE72M0HS]
"Swift adoption by parliament of the 'too big to fail' proposal would be a major contribution in reducing the risks created by the two large banks," the IMF said.
The Swiss Finance Ministry said it would convene a working group to look into the IMF's call for Switzerland to strengthen regulation of its financial sector and clarify the respective mandates of the SNB and financial markets regulator FINMA.
The IMF also called for the authorities to keep a close eye on the booming Swiss housing market: "The development of lax lending standards in the mortgage market and increasing interest rate risk call for pre-emptive measures," it said. (Editing by Toby Chopra)
- Tweet this
- Share this
- Digg this