* SNB's priority is to fight deflation
* SNB buying bonds, but can't give details on plans
* Economic downturn will hit Swiss banks' balance sheets
(Adds details, background)
ZURICH, March 20 (Reuters) - The buying of foreign currency is the best way to fight deflation and it was not intended to put Switzerland at an advantage over other countries, the head of the Swiss National Bank was quoted as saying on Friday.
"The buying of foreign currency is today our strongest instrument for quantitative easing and therefore for fighting deflation," Jean-Pierre Roth said in an interview with Swiss paper Finanz und Wirtschaft released one day ahead of publication.
Roth said the SNB did not want enter devaluation race with other countries by weakening the franc, repeating comments made by SNB board member Thomas Jordan on Thursday.
The SNB surprised markets last week with intervention, weakening the franc, and the announcement of corporate bond purchases. This was on top of an interest rate cut that brought its target for the 3-month franc LIBOR to 0.25 percent, the lowest level since 2003.
The SNB has drawn some criticism from abroad for supposedly engaging in a beggar-thy-neighbour policy, but the central bank has repeatedly said it only wants to stem the rise of the franc to prevent the risk of deflation.
The central bank was having to turn to unusual measures due to the exceptional character of the crisis, Roth said.
"We are in a text book liquidity trap, but we have hardly any experience with this," he said. "That is why we are having to open new channels to ease quantitatively."
Roth also said the SNB had already started to buy bonds in order to lower risk premiums in the credit market, but declined again to give details.
"I cannot provide details. We are in a trial phase for this new instrument," Roth said.
Markets and analysts alike are wondering which types of corporate bonds the central bank may purchase.
When asked whether Switzerland may have to reach for another bailout for its financial system, Roth was cautious, saying the situation was still tense.
"The worsening of the economic situation will show up on the banks' balance sheets," he said. "Switzerland is no exception, but at least our banks are still well capitalised." (Reporting by Katie Reid and Sven Egenter)