Swiss National Bank Raises Interest Rate to 1.75%, Says More Increases Likely

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The Swiss National Bank delivered the smallest interest-rate hike since it began monetary tightening a year ago while saying more action to tame inflation is probable. It’s “most likely” that further tightening will be necessary, President Thomas Jordan told reporters in Zurich after policymakers lifted the key rate by a quarter-point to 1.75%. That move matched median forecasts by economists surveyed by Bloomberg. Thursday’s step is aimed at “countering inflationary pressure, which has increased again,” the SNB chief said. 

The decision to dial down hiking suggests Swiss officials are becoming less concerned about the threat posed to consumer prices as the country experiences the slowest inflation of any advanced economy. With some investors having expected a half-point move from the SNB, the franc fell to its lowest level against the euro since may, weakening by as much as 0.3%.

The central bank, which unveils rate announcements only once a quarter, is acting to tame price pressures both domestically and globally as it plays catchup to more advanced tightening elsewhere. The SNB has now raised borrowing costs by 250 basis points since starting out last year, compared with 400 basis points in the euro zone and even more in the US.

The Swiss decision coincides with another round of hikes in the region on Thursday. Norway lifted rates by 50 basis points and said more tightening is likely. The UK is seen raising by at least a quarter point later in the day. The SNB’s move to slow jars with Jordan’s hawkish language of late and suggests recent data — including three months of slowing price growth and a drop in an underlying measure to below the 2% ceiling targeted by officials — have begun to provide reassurance that the country is exiting the danger zone.

The central bank projects inflation of 2.2% in 2023, 2.2% in 2024 and 2.1% in 2025. That compares with prior forecasts for 2.6% this year and 2% in the following two. “From 2024 onwards, the new forecast is higher than in March, despite today’s increase in the SNB policy rate,” Jordan said. “The reasons for this are ongoing second-round effects, higher electricity prices and rents, and more persistent inflationary pressure from abroad.” After an unexpectedly strong recovery at the start of the year, the SNB sees the Swiss economy growing about 1% this year — down from 2.1% in 2022.

“Subdued demand from abroad, the loss of purchasing power due to inflation, and more restrictive financial conditions are having a dampening effect,” Jordan said. Earlier Thursday, the SNB published its financial-stability report, which for the first time included the consequences of Credit Suisse Group AG’s near-demise and its subsequent government-brokered takeover by UBS Group AG. It also warned that apartment prices have risen to as much as 40% above their fundamental value — a shift that contribute to causing a correction in the market.

Speaking alongside Jordan in Zurich, board member Andrea Maechler reiterated that the SNB is willing to sell or buy foreign currency as required to help steer monetary policy. The central bank chief highlighted that “in the current environment, the focus is on selling foreign currency.”

Source : FinancialExpress