Swiss Central Bank Surprises Markets with First Rate Hike Since 2007

On Thursday, the Swiss National Bank hiked its policy interest rate for the first time in 15 years, following other Central Bank in tightening monetary policy to combat surging inflation and driving the safe-haven franc higher. The Central Bank lowered its policy rate from -0.75 percent to -0.25 percent, the lowest level since 2015. The SNB raised the rate for the first time since September 2007.

On Thursday, SNB Chairman Thomas Jordan told CNBC’s Julianna Tatelbaum, “We saw at the moment that inflation has grown in Switzerland — we have close to 3% — and we also noted that we have a certain danger of second-round effects.” “We came to the decision that it is now better to raise interest rates by 50 basis points rather than 25 basis points as an initial first step, in order to truly communicate that we are battling inflation so that it will be in the range of price stability over the medium term.”

The move came after the US Federal Reserve raised interest rates by 0.75 percent on Wednesday, and the European Central Bank said last week that it will raise rates in July to combat rising inflation in the eurozone, which topped 8.1 percent last month.”The stricter monetary policy is intended to keep inflation from spreading to commodities and services in Switzerland.” “It cannot be ruled out that further hikes in the SNB policy rate will be required in the near future to stabilise inflation in the range compatible with medium-term price stability,” it said in a statement.

The strength of the safe-haven franc has reduced the effect of inflation in Switzerland by lowering gasoline and food import prices. The SNB boosted its inflation predictions for 2022 from 2.1 percent in March to 2.8 percent. It also forecasts 1.9 percent and 1.6 percent inflation in 2023 and 2024, respectively, up from its earlier forecast of 0.9 percent inflation in those years.