By Tom Miles and Emma Farge
GENEVA, Feb 12 (Reuters) - Swiss National Bank chief Thomas Jordan rejected the idea that he was fuelling a currency war by keeping a lid on the strong franc, saying on Tuesday he welcomed the franc's recent weakening and expected it to continue.
The safe-haven franc, on which the SNB imposed a 1.20 per euro limit in September 2011 to prevent Switzerland sliding into deflation and recession, has fallen more than 2 percent this year as sentiment on the euro zone has improved.
'Since the start of the year the franc has weakened, and we welcome this development. Nevertheless it remains at a raised, high level even at the current rate. Consequently we expect that the Swiss franc will continue to go down,' told a news conference in Geneva.
Jordan began his remarks moments after the Group of Seven nations issued a statement reiterating its commitment to market-set exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.
The euro jumped to a session high of 1.2353 francs on trading platform EBS after the comments from 1.2308 but later reversed some gains to trade at 1.2324 at 1244 GMT.
'The Swiss cap remains the adequate instrument to guarantee price stability. The reasons for introducing it remain valid,' Jordan said, reiterating the SNB would consider further steps if necessary.
'We do not exclude any measures in case it's necessary to have adequate monetary conditions in Switzerland,' he said.
But he rejected the idea that Switzerland or other major central banks were in a war to devalue their currencies.
'I am convinced that the major central banks in the world are not in a currency war. They focus monetary policy on the needs of the domestic economy. This is true in Europe, this is also true in America and Japan.'
Jordan did not comment directly on the G7 statement, but dismissed suggestions that the lid on the value of the franc was part of a currency war and said it was taken to defend the domestic economy from a damaging surge in currency speculation during the financial crisis rather than to boost Swiss exports.
'You had a lot of outflows in Europe and a lot of inflows in Switzerland and then the monetary conditions in Switzerland became so extreme that there was a huge risk of falling into a deflation and into a huge recession.'
Switzerland's cap was set far below the equilibrium exchange rate and simply sought to 'limit the extreme', he said.
Data out earlier on Tuesday showed Swiss consumer prices fell by 0.3 percent in January, supporting the case to maintain the lid on the currency due to deflation concerns.
'Inflation of less than 2 percent is tolerable for them and we're obviously very far away from that threshold,' said UBS economist Reto Huenerwadel. 'That also mean the floor for the euro-franc exchange rate is going to remain unchanged.'
Jordan said he saw no risk of inflation in Switzerland in the near future and said 2012 growth should come in at about 1 percent, compared with a 0.5 percent contraction in the euro zone economy.
'For the fourth quarter, we are counting on slower growth but still positive, while the contraction becomes more pronounced in the euro zone,' he said.
Swiss fourth-quarter gross domestic product data is due on Feb. 28. The economy grew a faster-than-expected 0.6 percent in the third quarter, but the SNB said in December that it expected a significant weakening for the year end.
(Reporting by Tom Miles and Emma Farge, writing by Emma Thomasson; Editing by Hugh Lawson) Keywords: SWISS SNB/
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