ZURICH – The Swiss National Bank cut its key interest rate by half a percentage point to 2 percent Thursday, only its second reduction since March 2003.

The central bank said its move is intended to stimulate the economy amid the world’s financial problems, and that higher interest rates were not needed because Swiss inflation is expected to decline.

It follows a half point cut by the European Central Bank and a massive 1.5 percent cut by the Bank of England also Thursday.

"The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters," the bank said.

It said it acted because signs indicated that the Swiss economy might contract in 2009.

"The economic slowdown, the decline in the price of oil and the appreciation of the Swiss franc are reinforcing the expected drop in inflation," the bank said. "Today’s relaxation of monetary policy provides an impetus to economic activity, and will not jeopardise the return to price stability."

The bank, which has been coordinating its response to the global crisis with other central banks, said it would continue to provide the Swiss franc money market with liquidity.

It said it also will keep a close watch on the movement of the franc on the foreign exchange market.

The franc, a traditional safe haven in times of crisis, has been increasing in value against the euro and the British pound recently.

[AP / Expatica]