Written by John Revell and Silke Koltrowitz
ZURICH (Reuters) – The Swiss National Bank raised its policy rate by 0.75 percentage points on Thursday – only the second hike in 15 years – and said it could not rule out further increases as it joined other central banks in tightening monetary policy to rein in. inflation.
The Swiss National Bank raised the interest rate to 0.5% from -0.25% it set in June. Previously, Swiss interest rates were frozen at minus 0.75% for years as the Swiss National Bank tried to tame the safe-haven rally of the Swiss franc.
Most economists polled by Reuters had expected the Swiss National Bank to raise the interest rate to 0.5%.
“It cannot be ruled out that additional increases in SNB policy will be necessary to ensure price stability in the medium term,” SNB President Thomas Jordan told a news conference.
He added that the SNB is also ready for activity in the FX markets. This means the central bank will buy foreign currency to curb the “excessive appreciation” of the Swiss franc, Jordan said.
“If the Swiss franc weakens, we will consider selling foreign currencies,” Jordan said.
Swiss government bond yields fell, reversing after the initial rally, while the franc fell broadly, falling against the dollar, euro and pound.
Jordan noted that the franc has risen about 7% since the Swiss central bank last raised its interest rate in June, a development that helped curb inflation in Switzerland.
The Swiss central bank’s decision to raise interest rates came on the heels of price hikes in Switzerland and hawkish moves by other central banks trying to control soaring inflation caused by rising energy costs, tight labor markets and supply chain bottlenecks.
The US Federal Reserve raised its benchmark interest rate by 75 basis points on Wednesday, its third consecutive hike of this size, while the Bank of England is also expected to raise interest rates by 50 basis points later on Thursday.
The European Central Bank this month also raised its deposit rate by 75 basis points and promised more increases to combat soaring inflation, which reached 9.1% in August driven by rising fuel and energy costs.
Although still modest in comparison, Swiss inflation came in at 3.5% higher than expected in August, the seventh consecutive month that it has exceeded the SNB’s target range of 0-2% and its highest level since August 1993.
Board member Andrea Mitchler said the SNB will use SNB bonds and repo transactions to absorb liquidity to ensure that short-term money market rates remain close to the now positive policy rate. It also introduces tiered bonuses for deposits that banks keep with the Swiss National Bank.
Karsten Junius, economist at J.Safra Sarasin, said the SNB hike was accompanied by a more pessimistic message regarding additional hikes than messages from other central banks.
“The SNB says it ‘cannot be ruled out that additional increases in SNB policy are necessary’ while all other central banks announce in one form or another continued tightening,” he said.
“The SNB language combined with inflation expectations that remain below 2% in 2024 (and only rise to 2% in the second quarter of 2025 again) make it unlikely that the SNB will plan to raise interest rates by as much as Another 75 basis points in December again. At this point, we will look at the possibility of 50 basis points at most.”