The Swiss National Bank hasn’t raised the country’s interest rates since 2007, but today the bank surprised the world with a rate increase. Sam Jones and Tommy Stubbington report for the Financial Times:
Switzerland’s central bank on Thursday raised interest rates for the first time in 15 years, as it became the latest rate-setter to shift away from ultra-loose monetary policy.
The Swiss National Bank said its benchmark rate would rise by 50 basis points from minus 0.75 per cent to minus 0.25 per cent, catching markets off guard. The Swiss franc surged following the surprise decision, gaining 1.7 per cent to trade at 1.02 to the euro, the strongest level in nearly two months.
The move came just hours after the US Federal Reserve announced it would raise rates by 75 basis points, but ahead of a likely rise in rates from the European Central Bank in July.
As a big exporter, Switzerland closely watches the exchange rate with the euro and has, in the past, waited to follow a lead from Frankfurt. But expectations that inflation will remain uncomfortably high in the coming quarters led the central bank to go first.
“The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland. It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future,” the bank said in a short statement.
Inflation hit 2.9 per cent in Switzerland in May, its highest level in about 14 years.
The central bank also removed a reference to a “highly valued” franc in its statement, indicating it is backing away from a longstanding policy of trying to curb the currency’s strength.
“If we take the SNB by its word, it now seems as if it would like currency strength, to take the sting out of imported price inflation,” said Melanie Debono of Pantheon Macroeconomics.
Read more here.