SNB defends raising rates, says not to blame for Credit Suisse failure

(This May 31 story has been corrected to clarify that Jordan's comment referred to another bank and not Credit Suisse, in paragraph 9)

ZURICH (Reuters) - Swiss National Bank Chairman Thomas Jordan on Wednesday defended recent interest rate hikes to tackle inflation, saying they were neither damaging for Swiss financial stability nor responsible for the downfall of Credit Suisse.

The SNB has increased interest rates four times over the past year to reduce inflation which has persisted above the central bank's target of 0%-2%.

The market currently expects 25 basis point rise from the current 1.5% level when the central bank makes its next assessment in June.

"Interest rates in Switzerland are still very low," Jordan told an event in Lugano, southern Switzerland. "We don't see a big risk in over tightening monetary policy.

"It is not something that will damage financial stability in general in Switzerland," he added.

Indeed, higher rates can be seen as a positive for financial stability by helping banks to restore their profit margins, he said.

"We had this financial stability issue with Credit Suisse, but that was something different," Jordan said. "This is an individual case, where interest rates were not the problem but rather a lack of trust of market participants in an institution."

Jordan said he was concerned by the pace of bank withdrawals which ultimately led to the stricken bank's rescue and takeover by UBS in an operation engineered by the government and the SNB.

He referred to a separate case where 90% of deposits left another bank in a matter of days.

Jordan said. "That is surely something we have to look at very carefully and see what we can do to avoid these kind of bank runs."

Jordan said he also remained concerned about Swiss inflation, which eased in April to 2.6%, but remained outside the SNB's target range for the 14th month in succession.

The longer inflation remains above the central bank's goal, the more it becomes entrenched in the perception of companies and households and becomes harder to reduce, Jordan said.

"We have to bring it back below 2% as soon as possible," Jordan said.

(Reporting by John Revill; Editing by Alison Williams)