Switzerland's central bank in Online News & Headline News

Swiss Central Bank Hikes Key Rate For First Time Since 2007

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Switzerland’s central bank hiked interest rates Thursday for the first time in 15 years, joining peers in other countries in tightening monetary policy to drive down inflation. Online News

In a surprise announcement, the Swiss National Bank raised the rate by 0.5 percentage points, though it remains in negative territory at minus 0.25 percent.

The SNB warned that “it cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future.”

The central bank, which like many of its peers around the world is wary of signs of surging prices, said the hike could be needed “to stabilise inflation in the range consistent with price stability over the medium term.”

The bank said its policy rate change would apply from Friday.

“To ensure appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary,” it said.

The announcement came a day after the US Federal Reserve announced its biggest rate hike in nearly 28 years, raising it by 0.75 percentage points to combat decades-high inflation.

The European Central Bank plans to start a series of rate increases next month, while the Bank of England announced a fifth straight hike on Thursday.

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But analysts said the SNB move, the first since 2007, came as a surprise.

“This is an incredibly hawkish tilt for the SNB, who are upping their inflation-fighting credential in one fell swoop,” Stephen Innes, managing partner at SPI Asset Management, said in a note.

Switzerland's central bank in Online News & Headline News
The Swiss National Bank August 2019 Author: Hadi

“We should expect more aggressive follow-through from other central banks except those who are economically challenged,” he said.

“The race to the top is back on track.”

Swiss inflation remains significantly lower than in the neighbouring eurozone and in the United States, thanks to the strong Swiss franc, which so far has helped avoid surging prices on imported products.

But since February, it has been above the SNB objectives of keeping price fluctuations between zero and two percent.

The Swiss inflation rate stood at 2.9 percent in May and “is likely to remain at an elevated level for the time being,” the bank said.

Looking forward, the SNB said it now expects inflation to stand 2.8 percent in 2022, 1.9 percent in 2023 and 1.6 percent in 2024.

“Without today’s SNB policy rate increase, the inflation forecast would be significantly higher,” it said.

Inflation has soared worldwide as Russia’s invasion of Ukraine has sent energy and food prices through the roof. Supply chain bottlenecks have also driven up prices after countries emerged from Covid lockdowns.

The surge in consumer prices has contributed to a slowdown in global economic growth.

The SNB maintained its forecasts that the Swiss economy would grow 2.5 percent this year, with unemployment remaining low.

That, it said, was based “on the assumption that the global economy continues to grow and that the war in Ukraine does not escalate further.”


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