UPDATE 2-SNB sticks to expansive policy to tackle highly valued franc

* Keep negative rates on hold as expected

* Still ready to intervene to rein in strong franc (Recasts with comments from news conference)

BERN, Dec 14 (Reuters) - The Swiss National Bank expects inflation in Switzerland to exceed its target in three years' time - indicating a potential timeline for the central bank's exiting its ultra-loose monetary policy.

The SNB on Thursday kept that policy in place, saying the Swiss franc remained "highly valued" despite its weakening this year.

But it said it expected Swiss prices to rise 2.1 percent in the third quarter of 2020 - marginally higher than the bank's goal of price stability, which it defines as prices rising by less than 2 percent.

The bank outlined its views hours before a meeting of the European Central Bank, which has reduced the pace of its asset purchase program, seen as the first stage in weaning the euro zone off loose money.

The ECB meeting may debate tweaking its pledge to keep money at its current ultra-easy level, although it will likely ultimately reaffirm its policy stance.

The Swiss bank tweaked upwards its short-term inflation expectations for 2017 and 2018 while leaving its 2019 view unchanged.

Rising prices, attributed to the recent weakening of the franc and rising oil prices, could lead to higher interest rates which have been frozen in negative territory for nearly three years, analysts said.

Jordan said it was too early to speak of normalizing SNB policy.

The franc remained "highly valued," he told a news conference, despite the currency's losing around 7 percent in value over the last six months.


"The depreciation of the franc reflects the fact that safe havens are currently less sought after," Jordan said. "However this development is still fragile."

Therefore expansionary monetary policy, with negative interest rates and currency market interventions where needed, remained necessary, Jordan said.

Jordan was speaking as the SNB kept the target range for its benchmark interest rate frozen at minus 1.25 percent to minus 0.25 percent, in line with the expectations of analysts polled by Reuters.

It kept its negative rate of 0.75 percent on deposits held by commercial banks with the SNB, a measure to reduce the attraction of the Swiss franc to investors.

The central bank said it remained ready to intervene in the forex markets as necessary to restrain the currency, the second plank of its strategy deployed since January 2015.

Analysts said the SNB's increasing inflation expectations could be the Swiss central bank's signal it was considering tightening monetary policy, although it remained unclear when the central bank would start increasing interest rates.

"An increased inflation forecast is an early signal that the SNB is looking to normalize its policy," said Maxime Botteron, an economist at Credit Suisse.

"They wouldn't want inflation to be above 2 percent for a sustained period, so would consider raising interest rates to deal with it.

"However, as the central bank continues to point at the high valuation of the franc, some more depreciation of the currency would probably be required for the SNB to raise its policy rate before the European Central Bank. That said, the probability of a rate hike in 2018 has increased after todays meeting."

The U.S. Federal Reserve and the Bank of England have started to normalize policy after the ultra-low interest rates introduced to stimulate their economies following the global economic crisis. (Reporting by John Revill, editing by John Miller, William Maclean)