The Swiss National Bank raised its interest rate by 50 basis points and signaled more to come as it resumed its inflation fight just days after the downfall of the country’s second-biggest bank became the epicenter of global financial turmoil.
(Bloomberg) — The Swiss National Bank raised its interest rate by 50 basis points and signaled more to come as it resumed its inflation fight just days after the downfall of the country’s second-biggest bank became the epicenter of global financial turmoil.
Officials lifted the benchmark to 1.5%, an outcome predicted by most economists before Credit Suisse Group AG’s forced takeover by larger rival UBS Group AG clouded the outlook with worsened market turbulence earlier this week.
“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” officials said in a statement. “To provide appropriate monetary conditions, the SNB also remains willing to be active in the foreign exchange market.”
The quarterly decision on Thursday by policymakers led by Thomas Jordan matches that of the European Central Bank, which raised by the same amount last week, and follows Wednesday’s move by the Federal Reserve to hike by a quarter point.
By pushing through with a large step, the SNB signaled its alarm about inflation outweighs any concerns after the market reaction to the Swiss deal on Sunday, whose terms triggered a tightening of financial conditions for banks throughout Europe. Officials did acknowledge that turmoil had been a distraction.
“Measures announced at the weekend by the federal government, FINMA and the SNB have put a halt to the crisis,” they said. “The SNB is providing large amounts of liquidity assistance in Swiss francs and foreign currencies. These loans are backed by collateral and subject to interest.”
Inflation Worry
While consumer-price growth in Switzerland is less than half of the surrounding euro area and is low by international standards, an unexpected acceleration in February and worries of potential wage pressures prompted heightened concern by officials.
The move allows Switzerland to partially narrow the difference with the higher rates of the ECB and the Fed, whose policymakers set monetary policy twice as often. That means it could potentially help shore up the franc against imported price pressures.
Benchmark borrowing costs in Switzerland remain 150 basis points lower than in the euro area.
The SNB projects inflation of 2.6% in 2023, slowing to 2% in the following two years. That compares with prior forecasts for 2.4% this year and 1.8% in 2024.
After unexpectedly failing to grow in the final quarter of last year, Switzerland is still seen likely to escape a recession. The economy is likely to expand around 1% this year, down from 2.1% in 2022.
Jordan, who will hold a press conference in Zurich, is likely to face the most questions on the Credit Suisse deal that he helped oversee last weekend. It included a controversial wipe-out of so-called AT1-bonds, provoking global market ructions before regulators elsewhere reassured investors that they wouldn’t do the same.
–With assistance from Kristian Siedenburg, Joel Rinneby, Claudia Maedler, Fergal O’Brien, Marion Halftermeyer and Philip Lagerkranser.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.