Swiss central bank keeps powder dry on rates ahead of Brexit vote

By Silke Koltrowitz and John Revill

BERN (Reuters) - Switzerland's central bank held fire on tinkering with record-low negative interest rates on Thursday, keeping its powder dry should a British vote next week to leave the European Union spark a flood into the Swiss franc.

The franc is viewed as a safe-haven currency in times of uncertainty and rising anxiety over the implications of a British exit from the EU has pushed it higher in recent weeks. On Tuesday, the franc hit a 2016 high of 1.0787 against the euro.

"Next week's UK referendum on whether to remain in the EU may cause uncertainty and turbulence to increase," Swiss National Bank Chairman Thomas Jordan told a news conference. "We will be monitoring the situation closely and will take measures if required," he said without elaborating.

Several recent opinion polls in Britain showed those who want to leave the EU in the lead, despite warnings from Prime Minister David Cameron, the Bank of England and others that Brexit could cause significant economic disruption.

The SNB uses a mixture of negative interest rates and currency purchases in an effort to weaken the "significantly overvalued" franc and ease pressure on Swiss exporters, which are crucial to the economy.

As unanimously expected by economists in a Reuters poll, the SNB kept its target range for three-month Libor between -1.25 and -0.25 percent. It also maintained a charge on cash deposits of 0.75 percent at its quarterly policy review.

BREXIT WAITING GAME

There was little immediate market reaction to the rate decision.

The SNB has said in the past it has the option to go more negative with rates if necessary.

"The risk remains that the United Kingdom will leave the European Union, and if that happens, the SNB is only going to be under more pressure," Zuercher Kantonalbank senior economist Cornelia Luchsinger said.

"With the recent market turbulence, it's very likely that the SNB has grown more aggressive with its intervention."

The SNB followed the lead of other central banks including the U.S. Federal Reserve, which on Wednesday kept rates unchanged while acknowledging Britain's possible exit from the EU was one of the factors driving its decision.

The Bank of Japan refrained from offering additional monetary stimulus despite external headwinds and anaemic inflation, spiking the yen to a two-year high that clouds an already darkening outlook for the economy.

"We have also seen the other central banks refraining from taking action ahead of the referendum," said Maxime Botteron, an economist at Credit Suisse.

The SNB left unchanged its forecast for Swiss gross domestic product to grow this year between 1 percent and 1.5 percent.

It saw inflation this year at -0.4 percent, compared to -0.8 percent in its March forecast. For 2017, it expected inflation to return to positive territory with price growth of 0.3 percent versus 0.1 percent its March forecast.

(Additional reporting by John Miller; Writing by Joshua Franklin; Editing by Michael Shields and Raissa Kasolowskt)