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Swiss National Bank hikes rates in shock move, ready for more

The Swiss National Bank (SNB) building is pictured in Bern, Switzerland June 16, 2022. REUTERS/Arnd Wiegmann

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  • SNB raises rates for the first time since 2007
  • The president says that the franc is no longer highly valued
  • Free refuge leaps after the decision
  • Economists surprised by this decision expect more hikes to come

BERN, June 16 (Reuters) – The Swiss National Bank raised its key rate for the first time in 15 years in a surprise move on Thursday and said it was ready to raise further, joining other central banks in tighten monetary policy to combat resurgence inflation.

The central bank raised its key rate to -0.25% from the level of -0.75% it has rolled out since 2015, sending the safe haven franc sharply higher. Almost all economists polled by Reuters expected the SNB to keep rates steady. L8N2Y31U7 learn more

It was the SNB’s first increase since September 2007, and followed a 0.75 percentage point hike in borrowing costs by the US Federal Reserve on Wednesday.

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Other central banks are also raising interest rates as they try to rein in inflation driven by soaring fuel and food prices that are straining household and business budgets.

The Bank of England is expected to raise interest rates again on Thursday. Read more

The European Central Bank announced last week that it would increase in July to control eurozone inflation which hit 8.1% last month. Read more

SNB President Thomas Jordan said rising inflation in Switzerland – which hit its highest level in nearly 14 years in May – meant the central bank may have to act again.

Even after Thursday’s 0.5 point rate hike, the SNB expects inflation in the first quarter of 2025 to come in at 2.1%, outside of its 0%-2% rate target. In 2022, it expects a rate of 2.8%.

“Without the SNB’s key interest rate hike today, the inflation forecast would be significantly higher,” Jordan told a news conference.

“The new inflation forecasts show that further increases in the key rate may be needed for the foreseeable future,” he added, declining to indicate when or by how much the SNB might raise again.

“We’re not in the realm of very specific forward guidance, but … at the end of our forecast horizon, inflation will be above 2% again, so we need to see what action is needed,” Jordan said.

THE FRANC IS NO LONGER OVERVALUED

Analysts expect further increases in the coming quarters.

“Looking ahead, the monetary policy message is on the hawkish side,” said Gero Jung, an analyst at Mirabaud Asset Management. “For the SNB economists, the Swiss franc is no longer overvalued; secondly, inflation should be above the limit associated with price stability in Switzerland.”

David Oxley of Capital Economics said the SNB is likely to raise rates again, to zero or even positive territory, ahead of its next scheduled meeting in September.

Karsten Junius, economist at J Safra Sarasin, expects the SNB to hike rates at its next four quarterly meetings by 25 basis points each, before pausing. “We also don’t rule out a 50 basis point hike at its next meeting in September,” he said.

The SNB said Thursday’s rate hike was necessary to control rising prices in Switzerland, which had spread to goods and services previously unaffected by the impact of the war in Ukraine and bottlenecks. pandemic-related supply chain.

Price increases were being passed through faster than before, Jordan said, and action was needed to prevent inflation from taking hold. “It would be negligent to disregard inflationary developments,” he said.

The recent depreciation in trade-weighted terms meant that the Swiss franc was no longer highly valued in the foreign exchange markets – a long-standing concern for the SNB.

The bank said it was ready to intervene in the markets to stem excessive appreciation or weakening of the currency.

The Swiss trade union federation criticized the rate hike, saying the SNB allowed the strong franc to appreciate further, putting jobs and wages at risk.

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Reporting by John Revill; Editing by Michael Shields and Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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