Swiss central bank seen confirming franc cap, low rates

By Emma Thomasson

ZURICH (Reuters) - The Swiss National Bank is expected to reassert its determination on Thursday to defend the lid it set on the franc as the euro zone's uncertainties underpin demand for the currency as a safe haven.

The SNB imposed a cap on the franc at 1.20 per euro in September 2011 to prevent deflation and a recession, after investors seeking sanctuary from the euro zone crisis had pushed the currency's value up by a quarter in just a few months.

Economists polled by Reuters predict the SNB will stick to the policy through 2013, with many expecting it to hold into 2014 and some saying it could last even longer.

Economists also expect the central bank to keep its target range for the Swiss franc LIBOR, its benchmark interest rate, at 0 to 0.25 percent when it announces its quarterly monetary policy decision at 0830 GMT.

Most expect the rate to remain near zero until well into 2014, although a couple see a first hike later this year.

"We are not looking for a change in the SNB's exchange rate (cap) currently standing at 1.20. Consequently markets and we expect the Libor target to remain untouched for another quarter, too," said UBS economist Reto Huenerwadel.

SNB Chairman Thomas Jordan said last month the bank is far from ending the cap, pointing to new risks from Italy's indecisive election, which prompted a brief franc rally.

Defending the cap has pushed the SNB's foreign exchange reserves to levels equivalent to almost three-quarters of Swiss annual output, but it has not had to intervene in recent months.

Currency strategists polled by Reuters last week forecast the franc at around 1.23 euros over the next three months, weakening to 1.25 euros in six to 12 months time.

Fourteen out of 21 economists say Swiss officials won't take further measures to deter safe-haven flows if the euro zone crisis festers.

Of those who did expect further measures, a charge on sight deposits - the cash commercial banks hold with the central bank - was considered the most likely, followed by forcing commercial banks to charge offshore clients to hold deposits in francs.

Given the euro zone's weak economy and the Italian worries, only one out of 21 economists expects the SNB to shift the cap to 1.25 per euro, compared with three out of 29 in December.

The central bank will issue fresh growth and inflation forecasts on Thursday. Economists expect it to predict growth of 1.3 percent for 2013, compared with the bank's 1-1.5 percent forecast in December.

Price pressures are also forecast to stay far below the SNB's 2 percent threshold. The bank is expected to keep its forecast for 2013 inflation unchanged at -0.1 percent, raise its 2014 prediction to 0.5 percent from a previous 0.4 percent, and forecast 0.9 percent in 2015.

(Reporting by Emma Thomasson; Editing by Ruth Pitchford)