Swiss central bank raises interest rates by 50 basis points to counter ‘further spread of inflation’

The Swiss National Bank raised its benchmark interest rate on Thursday for the third time this year, taking it to 1%.

The central bank said it was looking to counter “increased inflationary pressures and a further spread of inflation”[ads1]; with the move.

Inflation in the country is still well above the Swiss National Bank’s target of 0-2%, but is noticeably below the soaring rates of neighboring European countries. Switzerland’s inflation rate held steady at 3% last month, after falling from a three-decade high of 3.5% in August.

The central bank’s 50 basis point increase on Thursday came after it unexpectedly raised its key interest rate for the first time in 15 years in June, taking it from -0.75% to -0.25%. It then entered positive territory with a gain of 75 basis points on September 22.

And there may be more trips on the horizon.

“It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability in the medium term,” says a press release from the central bank.

“To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as needed,” it added.

Global decline

In announcing its latest rate hike, the Swiss National Bank noted the global slowdown in growth and that inflation is “significantly above” central banks’ targets in many countries – and it does not expect this to change anytime soon.

“The SNB expects this challenging situation to persist for the time being. Global economic growth is likely to be weak in the coming quarters, and inflation will remain high for the time being,” the press release states.

In the medium term, however, the bank expects inflation to settle at more moderate levels as countries continue to tighten monetary policy.

Charlotte de Montpellier, senior economist at ING, noted that the Swiss National Bank’s total increase of 175 basis points in 2022 compares with an expected increase of 250 basis points in the eurozone and a 425 basis point increase in the US