Zurich - The Swiss central bank announced Thursday it would cut interest rates by 25 basis points to a target of 0.25 per cent in an attempt to shore up the economy and prevent deflation.

The use of the monetary policy by the Swiss National Bank would also involve buying up bonds and foreign currency to prevent further appreciation of the franc against the Euro.

Since September last year the franc has gained more than 8 per cent on the euro, making Swiss exports more expensive during the current economic downturn, particularly to its main trading partners in the euro zone, at a time the industry was already expecting a contraction.

The bank lowered the target range for the three-month Libor by 25 basis points, to 0-0.75, with the goal of bringing it down to 0.25, the SNB said in a statement.

A revised growth forecast for the national economy expected real GDP to fall by between 2.5 and 3 per cent for this year.

While some deflation might be inevitable the bank said its most recent moves would limit the impact over the next two years and keep inflation at zero.

Over the fourth quarter of 2008 the bank lowered interest rates by 225 basis points.

The SNB said it found that some Swiss banks had already begun to tighten their lending conditions "slightly" and credit was expected to freeze up even more in the upcoming months, though probably not at the scale witnessed globally. (dpa)