Swiss economic outlook good, rates appropriate - SNB

By Sven Egenter

ZUG, Switzerland (Reuters) - The Swiss economy remains well positioned to weather the global downturn but faces considerable risks which need close monitoring, Swiss National Bank board member Thomas Jordan said on Monday.

The central bank's current target level for the 3-month Swiss franc LIBOR of 2.75 percent looks appropriate for the foreseeable future, Jordan told journalists on the sidelines of a business event in Zug.

Inflation should ease to below the SNB's threshold for price stability of 2 percent in the course of the year but upside risks remained, Jordan said in a speech at the same event.

"Despite all negative influences the outlook for the Swiss economy remains positive," he said, repeating the SNB's forecast of a slowdown of growth to 1.5 to 2.0 percent 2008 from 3.1 percent last year.

"Inflation should fall below 2 percent in the course of the year," he said. "In this economic environment the SNB's target band for the 3-month LIBOR of 2.25 to 3.25 percent appears to be an appropriate level."

Jordan's comments moved interest rate futures higher only briefly<0#FES:>. Markets still price in a rate hike by the end of the year, although most analysts see the SNB either on hold or even cutting rates over the next 12 months.

The recent SNB comments raised second thoughts with those economists who have pencilled in a cut as the next rate move.

"Hints of a dovish inclination at the SNB at the start of the year have dissipated and we expect rates will be on hold until December," said BNP Paribas analyst Eoin O'Callaghan, who until recently expected a cut as soon as June.