[roccman]

Tick tock for carry trade

[Tanada]

$this->bbcode_second_pass_quote('roccman', '[')url=http://www.forbes.com/markets/2007/06/14/swiss-interest-rates-markets-equity-cx_po_0614markets05.html]Tick tock for carry trade[/url]

LONDON - Switzerland may keep a cool distance from the Eurozone but the country's growing economy has just as much need to be contained as that of its neighbors. Little over a week after the European Central Bank raised key interest rates to 4.0%, the Swiss National Bank on Thursday increased its benchmark rate to 2.5% from 2.25% and signaled there were more hikes to come.

The increase was widely expected by analysts, and as the ninth successive hike in recent years it put the benchmark rate at its highest level since 2001. Swiss National Bank Chairman Jean-Pierre Roth said that the weak Swiss franc had till now been giving the economy a boost.

Inflation, the flip side of a weak currency, is also set to keep rising: The central bank's expectations for inflation in 2008 increased to 1.5%, compared with a previous forecast of 1.4%, while predictions for inflation in 2007 also increased to 0.8% from 0.5%. Those levels are mild by the standards of most countries, but the Swiss have historically prided themselves on a strong currency in part because the country has served as a haven for investors.

The Swiss National Bank indicated it would raise interest rates again if economic conditions in the country don't change or if the currency remains weak. "Since the beginning of the year, household spending has been increasing at very steady pace. A continuance of this trend is possible," Roth said in a speech following the central bank's interest-rate-setting meeting.

Over the past year, the dollar has risen to 1.2452 Swiss francs from 1.2361. More tellingly, because the dollar also has been weak, a euro now buys 1.6572 Swiss francs, up from 1.5525 a year ago.

[Bas]

carry trade is good for nothing. I don't see how this will affect it, or the Euro either. This is such non-news.