SNB sees deflation risks if franc rises again

The Swiss National Bank said on Thursday it will use all means to prevent a further rise of the Swiss franc as this could carry deflationary risks for the country, prompting the franc to drop against major currencies.

"A further appreciation of the franc carries the danger of a sustainable deflationary dynamic in Switzerland. This must be prevented with all means," SNB Vice-President Philipp Hildebrand told the Swiss Funds and Asset Management Forum in Berne.

His comments made the euro jump to a session high of 1.5234 against the Swiss franc and was up almost half a percentage point on the day. The dollar also rose against the franc to 1.1480.

Hildebrand also said that the central bank's decision to intervene on the foreign exchange market was an insurance against the threat of a further appreciation of the franc in an environment that still remains difficult.

"As long as this environment does not improve and as long as the deflation risks are obvious within our monetary policy concept, we will resolutely stick to this strategy," he added.

He said the Swiss central bank, which stunned markets by buying foreign currency among bold monetary policy measures on March 12, would change track only when it was clear that Switzerland was back on a long-term growth path.

The central bank cut rates to an historic low of 0.25 percent and said it would buy foreign currencies to prevent a further appreciation of the franc. It said at the time would also intensify repo operations and buy corporate bonds.

"The SNB rhetoric supports expectations of further forex intervention if the franc strengthens," a London-based analyst said.

Speaking about the global economy, Hildebrand said that "the economic situation could slightly improve in the second half of the year."