The Swiss National Bank (SNB) building is on display in Bern, Switzerland, on June 16, 2022. REUTERS / Arnd Wiegmann
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- SNB is raising rates for the first time since 2007
- The president says the franc is no longer highly valued
- The safe haven rate rises after the decision
- Economists, surprised by the move, expect more hikes to come
BERN, June 16 (Reuters) – The Swiss National Bank raised its political interest rate for the first time in 15 years in a surprise move on Thursday and said it was ready to rise even further, joining other banks to tighten monetary policy to combat the resurgence. inflation.
The central bank increased its policy rate to -0.25% from the level of -0.75% it has deployed since 2015, which made the safe haven rise much higher. Almost all economists surveyed by Reuters expected the SNB to keep rates stable. L8N2Y31U7 read more
It was the SNB’s first increase since September 2007, followed by a 0.75 percentage point increase in US Federal Reserve borrowing costs.
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Other central banks are also raising interest rates as they try to cool inflation driven by rising fuel and food prices that are holding home and business budgets.
The Bank of England looks set to raise interest rates again on Thursday. Read more
The European Central Bank announced last week that it would rise in July to check eurozone inflation, which reached 8.1% last month. Read more
SNB President Thomas Jordan said rising Swiss inflation – which had reached its highest level in almost 14 years in May – meant the central bank would have to act again.
Even after the 0.5 point rate hike on Thursday, the SNB expects inflation to reach 2.1% in the first quarter of 2025, outside its target of a 0% to 2% rate. 2022 predicts a rate of 2.8%.
“Without the current SNB policy rate hike, the inflation forecast would be significantly higher,” Jordan told a news conference.
“The new inflation forecast shows that further increases in the policy rate may be needed in the foreseeable future,” he added, without indicating when or how much the SNB could rise again.
“We are not in the business of a very precise advance guide, but … at the end of our forecast horizon inflation will again exceed 2%, so we need to see what measures are needed,” Jordan said.
FRANC IS NO LONGER VALUABLE
Analysts expect more gains in the coming quarters.
“Looking to the future, the message of monetary policy is on the hawk side,” said Gero Jung, an analyst at Mirabaud Asset Management. “For SNB economists, the Swiss franc is no longer overvalued; second, inflation is expected to be above the limit associated with price stability in Switzerland.”
David Oxley of Capital Economics said the SNB is likely to raise rates again, to zero or even in positive territory, ahead of its next meeting scheduled for September.
Karsten Junius, an economist at J Safra Sarasin, expects the SNB to raise rates at its next four quarterly meetings by 25 basis points each, before taking a break. “We would also not rule out a 50 bp rise at the next September meeting,” he said.
The SNB said Thursday’s rate hike was necessary to check rising prices in Switzerland, which had been extended to goods and services that had not previously been affected by the impact of the war in Ukraine and pandemic-linked supply chain bottlenecks.
Rising prices were moving faster than before, Jordan said, and action was needed to keep inflation from slowing. “It would be negligent to ignore inflationary developments,” he said.
The recent trade-weighted depreciation meant that the Swiss franc was no longer highly valued in the foreign exchange markets, a long-standing concern for the SNB.
The bank said it was willing to intervene in the markets to check for the excessive appreciation or weakening of the currency.
The Swiss trade union federation criticized the rate hike, saying the SNB allowed the strong franc to rise further, putting jobs and wages at risk.
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Report by John Revill; Edited by Michael Shields and Catherine Evans
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