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SNB vice-chairman says further rate hikes may be needed

FILE PHOTO: Swiss National Bank news conference in Zurich

GENEVA (Reuters) - The Swiss National Bank may need to tighten its monetary policy further depending on how inflation develops in the country, Vice-Chairman Martin Schlegel said in an interview published on Saturday in Swiss newspaper SonntagsBlick.

SNB last month held its policy interest rate unchanged at 1.75%, noting that inflation - at 1.6% in August and within the central bank's target range of 0-2% - had eased.

"It cannot be ruled out that further tightening of monetary policy may be necessary," Schlegel was quoted as saying. "This depends on how inflation develops."

The vast majority of economists polled by Reuters last month, however, said that the SNB was done with interest rate hikes.

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Schlegel said growth would probably be subdued next year and that unemployment was expected to rise slightly.

The Swiss franc hit its strongest level since 2015 against the euro last Friday, on the back of investor risk aversion due to the war in the Middle East, as well as broad weakness in the euro.

"Our country is perceived as so stable that our currency appreciates in times of crisis," Schlegel said.

"But of course this also has consequences that are less desirable. This makes it even more difficult for export companies to be successful in economically uncertain times."

Schlegel added that the central bank was drawing lessons from the government's move to back a rescue deal for Credit Suisse in March, which rattled the Swiss banking sector and caused wider market panic.

"One lesson is certainly that Credit Suisse's liquidity flowed out significantly faster than the regulators in Switzerland and abroad had expected," he said.

He also said that AT1 bonds, which were written off as part of UBS' takeover of Credit Suisse, should have been loss-making at an earlier stage.

"Despite ongoing losses, Credit Suisse did not suspend interest payments on these instruments," Schlegel said. "This would have meant immediate financial relief for the bank."

(Reporting by Gabrielle Tétrault-Farber; Editing by Emelia Sithole-Matarise)