Swiss central bank raises interest rates as inflationary pressures hit hard

Swiss National Bank (SNB), the central bank of Switzerland.

COFFRINI FABRICS | AFP | Getty Images

The Swiss National Bank on Thursday raised its benchmark interest rate to 0.5%, a shift that will end an era of negative interest rates in Europe.

The 75 basis point hike follows a rise to -0.25% on June 16, the first rate hike in 15 years. Before that, the Swiss central bank kept interest rates stable at -0.75% since 2015.

It comes after inflation in Switzerland hit 3.5% last month – the highest rate in three decades.

The bank said raising key rates “counters the renewed rise in inflationary pressures and the spread of inflation to goods and services that have been less affected so far”.

It added that further hikes in key rates “cannot be ruled out”.

According to a Reuters poll, the increase is in line with economists’ expectations.

The Swiss franc weakened dramatically against the dollar and the euro following the rate hike. At 9:15 a.m. London time, the dollar was up 1.24% against the Swiss currency and the euro 1.6% higher.

Earlier this week, the Swiss franc hit its highest level against the euro since January 2015, as economists began speculating about the prospect of a 75 basis point gain.

Switzerland was the last remaining country in Europe with a negative policy rate as the region’s central banks have aggressively raised rates to deal with rising inflation.

Japan is now the last major economy to have a central bank in negative territory, after the Bank of Japan decided on Thursday to keep interest rates at -0.1%.

Denmark, meanwhile, ended its nearly decade-long negative interest rate series on September 8, when the central bank raised its benchmark rate by 0.75 percentage point to 0.65%.

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Most recently, the Swedish central bank raised its interest rate to 1.75% on September 20. The 100 basis point increase came as the Riksbank warned, “inflation is too high.”

The European Central Bank moved above zero when it raised interest rates on September 8 to curb rising inflation.

The ECB could continue to raise interest rates, but future increases will not be as drastic as the most recent 75 basis point increase on September 9, said Edward Scicluna, member of the ECB’s Governing Council.

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