Geneva - The Swiss National Bank announced Thursday it would continue with an expansionary monetary policy, aiming to keep interest rates low, supply liquidity to markets and prevent an appreciation of the franc against the euro.

The policy, initiated last March, was largely expected to be preserved. The bank said it was, however, proceeding with caution, owing to the uncertainties in the markets, even as it revised upwards its overall forecast for the economy.

"Despite the recent increase in the number of encouraging economic signs, uncertainty as to future developments remains considerable. In these circumstances, the SNB is opting for caution and retaining its monetary policy unchanged," the bank said in a statement.

The target Libor range would stay at 0.0-0.75 per cent, and keep it within the lower end, at 0.25 per cent.

In July, mortgage loans, which constitute the lions share of all loans, increased by 4.6 per cent, but other loans fell by 1.6 per cent. The central bank said it was not witnessing a credit crunch in the Swiss markets and that certain declines were expected in a recession.

The central bank said it would provide a "generous supply" of liquidity. To reduce risk on long term debt, it would purchase, should the need arise, Swiss franc bonds.

It also slightly revised upwards its forecast for Switzerland's gross domestic product, now expecting a 1.5-2 per cent decline, with growth to resume in coming months. It had previously expected a drop of up to 3 per cent.

The forecast for 2009 estimated deflation of 0.5 per cent, but the SNB expected prices to increase by 0.6 per cent in 2010 and 0.9 per cent in 2011.

The Swiss export market was expected to be affected positively by a recovery in other countries.

Warning that the global economic recovery may not fully materialize and that the Swiss financial sector was not yet out of the woods, the bank said its forecast involved "major risks."

"A risk of deflation therefore remains. Consequently, an immediate tightening of monetary conditions is not necessary," the statement said.

However, the bank warned that the inflation forecast showed it could not maintain an expansionary policy could not be maintained indefinitely without affecting medium and long-term price stability. It would maintain the course "for the time being." (dpa)