No one expected that. A few analysts estimated that the Swiss National Bank (SNB) could raise its rate by 25 basis points, but most thought it would wait until September to act. This is not the case. The institution announced a tightening of 50 basis points on Thursday morning. Its key rate rises to -0.25.
Bold move + 50bps https://t.co/GCRc1Ssrds
– Nadia Gharbi (@nghrbi) June 16, 2022
“This tightening of the reins must prevent inflation from spreading to Switzerland in a wider circle of goods and services,” Thomas Jordan told a news conference in Bern on Thursday morning. The president of the SNB added that “it is possible that further rate hikes will be needed in the near future to stabilize inflation in the medium term”. This is the first time since January 2015, when it withdrew the floor rate between the euro and the franc, that it has changed its key rate. This is even the first rate hike in 15 years.
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The SNB considers the inflationary pressure to be “increased”. Its economists have revised upwards their forecasts. The increase is expected to reach 2.8% this year (they were forecast at 2.1% in March), then 1.9% in 2023 (compared to 0.9% expected in March) and 1.6% in 2024 (compared to 0.9 %). “Without the rate hike decided today, the inflation forecast would be significantly higher,” the statement added. The decision will take effect tomorrow.
In its statement, the SNB also said it was ready to “be active in the foreign exchange market if necessary”. If the franc appreciates too much, it could buy foreign currency, but if it weakens, it would consider selling it, Thomas Jordan added. At the time of his speech, he stated that the franc was “no longer at a high level.” The Swiss currency has nevertheless jumped. It went from 1.0375 before the decision to 1.0172 for one euro. The Swiss stock market has fallen. SMI and SLI both lost more than 2%.
Risk of runaway
The reasons for high inflation? The SNB cites the war in Ukraine, which “plays a central role in driving up the prices of many commodities” and “persistent supply difficulties have led to further price increases for various goods”. In his speech, Thomas Jordan said that the institution has decided to “raise rates by half a point, as signs indicate that inflation is now spreading to goods and services not directly affected by the war in Ukraine and the aftermath of the pandemic ”. The central banker added that “price increases are reflected more quickly and are also more easily accepted than they have been until recently. Second-round effects are likely to persist if inflation is above 2% for an extended period of time. ”
Also read: Return of suspense to the SNB
“The decision makes sense,” said Stefan Gerlach, chief economist at EFG in Zurich in a tweet. With the next SNB meeting scheduled for September 22, the Fed and the ECB will meet twice in the meantime, meaning their key interest rates could rise by 100 and 75 basis points. “So the external context could see a radical change” before the SNB took action. In addition, inflation is above 2% and could rise further, the expert added.
Also read: The Fed is taking a historic step to counter inflation
The SNB is also seeing a “net” slowdown in the global economy, due to inflation and war uncertainties in Ukraine. However, it has kept its growth forecast for Switzerland unchanged at 2.5% this year, but here too the risks are significant. In addition to inflation and supply problems, she cites the danger of a resurgence of covid cases.
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