Switzerland has raised interest rates by half a percentage point, despite the financial turmoil that this week led to a rescue-takeover of one of the country’s largest lenders.
The Swiss National Bank opted to plough ahead with its fourth consecutive interest rate rise, saying the chances of inflation becoming entrenched had risen. It follows a half-point rise by the European Central Bank last week.
Inflation in Switzerland, at 3.4 per cent in February, remains far lower than elsewhere in Europe. But the SNB said it was concerned about upward price pressures becoming entrenched even as the global economy stagnates.
It now expects inflation of 2.6 per cent in 2023 and 2 per cent in 2024 and 2025. The central bank targets inflation of below 2 per cent.
“Ensuring price stability is and will remain the core objective of the SNB,” central bank chief Thomas Jordan said following the decision, which leaves the policy rate at 1.5 per cent.
Jordan spent last weekend brokering discussions between Credit Suisse and UBS, which was forced by the authorities to launch a rescue-takeover of its Swiss rival.
“Our monetary policy assessment has taken place in an exceptional situation,” Jordan said, referring to the near-collapse of Credit Suisse, adding that the SNB’s efforts had “put a halt” to the crisis in Switzerland.
Analysts expect further rises. “Without the turmoil, the SNB may have accelerated the rate hike cycle . . . In the circumstances, a steady pace was probably safer, but significantly more is needed,” said Christian Schulz, economist at Citi. “The economy is resilient, probably also to the domestic financial turmoil, so we expect 50 basis points in June and another 50 basis points at the remaining meetings this year.”
Others disagreed with Jordan’s view that the banking turmoil had been contained, saying there were likely to be economic repercussions.
“There is little doubt that fears about financial stability will have an impact on the availability of credit and thus on the economic situation and the inflation environment in the coming months, which will ultimately influence the path of interest rates,” said Charlotte de Montpellier, senior economist at Credit Suisse.
Norges Bank, the first leading western central bank to start tightening monetary policy after the Covid-19 pandemic, also raised rates on Thursday, warning that more increases were to come despite the recent financial upheaval.
Norway’s central bank increased borrowing costs by 0.25 percentage points to 3 per cent and suggested they would go higher at its next meeting as it tries to bring inflation under control.
“There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May,” said Norges Bank governor Ida Wolden Bache.
The Bank of England also raised rates by a quarter point, leaving the benchmark bank rate at 4.25 per cent.
The US Federal Reserve on Wednesday voted to lift the federal funds rate by a quarter point to a target range of 4.75 per cent to 5 per cent, the highest level since 2007.