Swiss central bank raises interest rates by 50 basis points despite Credit Suisse turmoil

The Swiss national flag will be flown from the Federal Palace, the Swiss parliament building in Bern, Switzerland, on Thursday, December 13, 2018. The Swiss National Bank lowered its inflation forecast and showed no inclination to exit the crisis, citing franc strength and rising global risks. Photographer: Stefan Wermuth/Bloomberg via Getty Images

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The Swiss National Bank raised its benchmark interest rate by 50 basis points to 1.5% on Thursday.

It is the fourth consecutive rate hike and the change in the policy rate is in line with analysts’ expectations.

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The additional monetary tightening has been introduced to counter “the renewed increase in inflationary pressures”, the bank said in a press release.

It also said further increases “cannot be ruled out … to ensure price stability over the medium term”.

According to a new forecast from the Swiss National Bank, average annual inflation will average 2.6% in 2023 and 2% in 2024 and 2025, with inflation expected to reach 2.1% by the end of 2025.

The latest rate hike comes as domestic inflation remains well above the Swiss National Bank’s target of between 0% and 2%.

Swiss inflation rose to 3.4% year-on-year in February, beating analysts’ expectations, although consumer prices are only a fraction of the rising rates of the country’s European neighbors.

The country’s interest rates broke out of negative territory for the first time in September, with the Swiss central bank surprising markets in June when it hiked rates for the first time since 2007.

The Swiss National Bank had hinted that further rate hikes are on the horizon if inflationary pressures persist.

“It cannot be excluded that additional increases in the SNB policy rate will be necessary to ensure price stability over the medium term,” said a central bank press release in December.

“In order to provide appropriate monetary conditions, the SNB is also prepared to be active in the foreign exchange market if necessary,” it added.

The Swiss National Bank was in the global spotlight last week after it agreed to lend up to 50 billion Swiss francs ($53.68 billion) to embattled lender Credit Suisse. Shares of the lender had plummeted on news that its largest investor, Saudi National Bank, would not provide further financial support.

The resulting liquidity lifeline and acquisition of UBS came after a tumultuous series of scandals and losses Swiss credit.


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