* SNB keeps 3-month LIBOR target at 0.25 percent as expected
* SNB ups 2010 growth f'cast, sees slowdown coming
* SNB lowers inflation forecasts for 2010, '11 and '12
* Markets push back rate hike expectations into H2 2011
(Adds comments from SNB chief)
By Sven Egenter
ZURICH, Sept 16 (Reuters) - The Swiss National Bank kept its interest rate target steady on Thursday, predicting a significant slowdown as the strength of the Swiss franc and the cooling of the global economy hits the Alpine country.
The central bank raised its growth forecast for 2010 to around 2.5 percent from 2 percent previously but said next year would not be so prosperous.
"For the second half of the year, and in particular for 2011 ... the SNB now expects a marked slowdown in growth," the SNB said in a statement following its interest rate decision.
The central bank said downside risks to the economy predominated and it revised its inflation forecasts down sharply, seeing price rises below its 2 percent stability threshold into 2013.
"The inflation forecast indicates that the expansionary monetary policy is currently appropriate, although it poses long-term risks to price stability," the SNB said.
While markets had widely expected the central bank to keep rates steady, the degree of concern about the economy and the low inflation forecasts came as a surprise to most observers.
"The SNB sounded much more dovish than we would have expected," Credit Suisse analyst Fabian Heller said. "We had so far expected them to hike rates this year. The statement suggest this will not happen until the next."
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Graphics on the 3-month Swiss franc Libor:
http://r.reuters.com/men93p
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FRANC DROPS
The SNB left its target band for the 3-month Swiss franc LIBOR unchanged at 0.00-0.75 percent, as expected by nearly all analysts in a Reuters poll. It continues to aim to keep the LIBOR around 0.25 percent, its goal since March 2009.
The Swiss franc dropped sharply versus the euro as the SNB's dovish statement led markets to push back rate hike expectations well into the second half of next year.
The franc dropped to a session low of around 1.3270 francs per euro from around 1.3095. The SNB's downbeat view on the economy prompted speculation the central bank may return to interventions to stem the franc's rise and fight deflation.
"(The SNB) mentioned the possibility of prices turning negative again," Informa Global Market's analyst Tony Nyman said. "At this point we don't see near-term intervention."
Markets have been speculating the SNB could renew its intervention pledge after Japan sold yen in the market on Wednesday for the first time in six years to stop the yen's rise from threatening a fragile economic recovery.
The SNB pumped nearly 200 billion Swiss francs into markets via interventions from March 2009 but in June this year dropped its pledge to step in, saying at that point that deflation risks had dissipated for the time being.
The central bank said on Thursday it would take the necessary measures should risks to the economy materialise and push the country back towards deflation.
In a joint interview with Swiss radio DRS1 and TV station SF1, SNB chief Philipp Hildebrand dodged the question on whether the SNB was ready to intervene in the currency markets again.
"We have a clear mandate, which is to ensure price stability while taking into account the development of the economy," Hildebrand said. "We will continue to conduct monetary policy in this framework," he said, otherwise echoing the SNB's statement.
NO INFLATION
Switzerland emerged from the worst recession in decades less bruised than many other European countries and while the economy has recorded strong growth over the past quarters, indicators point to an imminent slowdown.
Earlier in the day, the Swiss government cut its growth forecast for next year. It also cited a weaker global economy and the strength of the franc, predicting growth of 1.2 percent for 2011, compared with its June forecast of 1.6 percent.
The central bank forecast inflation of 0.7 percent this year, down from a previous forecast of 0.9.
The central bank sees inflation rising to an average of 1.2 percent in 2012, well below its June forecast of 2.2 percent. The SNB threshold for price stability is 2 percent.
It said it could not rule out inflation turning slightly negative at the beginning of 2011.