FRANKFURT, Dec 1 (Reuters) - The Swiss National Bank is sticking to its goal of fighting a rise in the franc against the euro as it mulls the right moment to start withdrawing extraordinary support for the economy, Chairman Jean-Pierre Roth said late on Monday.
Roth told the International Club of Frankfurt Business Journalists that prospects for the Swiss economy had improved, although the risk of deflation could come back if the financial crisis were to intensify again.
The SNB has fought the financial and economic crisis by cutting interest rates to historically low levels, buying bonds and intervening in markets to stop the franc rising -- a strategy Roth said had not changed.
"We will decisively prevent a rise ... in the franc against the euro," he said in comments approved for release on Tuesday."Our strategy from March has not changed, we stick to this strategy."
The franc was trading at around 1.5075 against the euro on Tuesday, close to the level where analysts and traders say the SNB could intervene, and was also close to parity against the U.S. dollar.
Some traders said the SNB intervened to stop a rise in the franc against the dollar after it hit a 19-month high last Thursday.
Asked if the SNB was also concerned about the dollar exchange rate, Roth noted that the euro zone accounted for 60 percent of Swiss trade and therefore the euro-franc rate was of "great importance" to the SNB.
He joined international colleagues in urging China to let its currency move more freely, after summit talks with the European Union failed to bring a change in tone.
"The relationship between the renminbi and the dollar is cause for concern. Why is U.S. monetary policy the best policy for China?" the SNB chief said.
"China should be independent with its own independent currency and its own independent prices and not (have) a fixed exchange rate."
OUTLOOK BRIGHTER
The SNB is expected to keep monetary policy loose at its next meeting on Dec. 10, targeting a three-month Libor rate of 0.25 percent, and will also release updated economic forecasts for growth and inflation.
Data earlier on Tuesday showed the Swiss economy pulled out of recession in the third quarter with growth of 0.3 percent in the three-month period, and manufacturing activity rose to a 20-month high in November.
Roth said the Swiss economy had proved more resilient than expected earlier in the year, but risks still remained.
"We expect measured growth," he said on the 2010 growth outlook. "We expect growth next year, so no more recession, but of course not strong growth."
The outlook for prices had also improved, as the SNB said in September, but the risk of deflation had not entirely gone.
"If the crisis were to be not fully over, we could come back into this situation (of deflation risk) relatively quickly," Roth said.
Banks would have to reckon with worsening credit portfolios and further writedowns, he said. Germany's Bundesbank estimated last week the country's banks faced up to 90 billion euros in writedowns by the end of 2010.
SNB policymakers have said the central bank will have to correct policy settings as the economy improves, but Roth gave no hint on when this might come.
All central banks were thinking about when and how to correct their extraordinary measures to support growth, and each had to take the decision based on local conditions.
"But when, the day and hour, that is like in the Bible," he said. "We don't know the day or the hour ... and advance notice is out of place. Central banks have a price stability goal and we know that with rates close to zero, one cannot have price stability in the long term. All central banks know that." (Reporting by Krista Hughes; Editing by Victoria Main) ((krista.hughes@reuters.com; +49 69 7565 1313; Reuters Messaging: krista.hughes.reuters.com@reuters.net))