SNB Hikes Interest Rates for a Fifth Time in a Row

Interest Rate Hike

The Swiss National Bank raised interest rates by 25 basis points on Thursday, taking them from 1.5%, set in March, to 1.75% level. The move was in line with experts’ expectations, as forecast of Reuters predicted interest hike. Rates are now at the highest level since October 2008. Switzerland’s central bank is focused on damping inflation and it also signals more hikes can come soon. Total amount of rate hikes in this cycle is now at 250 basis points in just one year. Additionally, the bank keeps on making interventions on foreign exchange rate market, where it sells currencies and buy Swiss francs in a bit to strengthen CHF exchange rate. Good exchange rate of Swiss franc helps curb inflation. The SNB is not the only central bank rising interest rates. In fact 250 basis points hike this year is still well below the European Central Bank's 400bp and the Federal Reserve's 500bp rises. The EC which last week raised euro zone rates to the highest level in 22 years.

Inflation Concerns

The SNB remains concerned about inflation that is still above 0-2% target, even though it has fallen sharply recently. In May it has reached 2.2%, whereas in February it was at 3.4% level. Core inflation was down below 2% to 1.9% in May. Thanks to lower energy prices and rising exchange rate of CHF, the SNB expects inflation to continue to fall. It should be at 1.7% in the third quarter. However overall for a whole year, the SNB foresees the inflation to be above 0-2% target well into 2026. The SNB’s chairman Thomas Jordan mentioned rising inflationary pressures and the danger of price increases while talking about fifth in a row interest rates hike: "The marked decline in recent months is very welcome. Nevertheless the underlying inflationary pressure has risen further. That means most likely that tighter monetary policy is necessary to bring inflation sustainably below 2%. But we can also afford the more gradual approach." – he said.