For the time being, the SNB is assuming that inflation will be higher.
(Photo: dpa)
Zurich The Swiss National Bank (SNB) continues to raise its key interest rate and is one of the last central banks to give up negative interest rates. In view of a renewed increase in inflationary pressure, the SNB key interest rate will be raised by 0.75 percentage points to 0.5 percent, the SNB announced on Thursday.
The Swiss currency watchdogs are following other important central banks in their approach: the US Federal Reserve and the European Central Bank (ECB) had recently tightened interest rates due to persistent inflation. The Japanese central bank stuck to its target interest rate of minus 0.1 percent on Thursday.
The SNB went on to say that it cannot be ruled out that further interest rate hikes will be necessary to ensure price stability in the medium term. In order to ensure appropriate monetary conditions, the central bank intends to intervene in the foreign exchange market if necessary. In 2021, the SNB bought foreign currencies for CHF 21.1 billion.
With the current rate hike, the SNB’s negative interest rates are history after almost eight years. The central bank introduced this on December 18, 2014, initially with an interest rate of minus 0.25 percent. In January 2015, the key interest rate was lowered to a record low of minus 0.75 percent when the minimum exchange rate for the euro was abandoned.
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In June, after more than seven years of monetary policy insistence, the SNB raised the key interest rate to minus 0.25 percent. Since then, inflation in Switzerland has continued to rise and the pressure on the three-person SNB Governing Board to counteract rising inflation in Switzerland has recently increased. For August, the statisticians reported inflation of 3.5 percent.
Compared to more than eight percent in the USA and more than nine percent in the euro zone, inflation is comparatively moderate, but for several months it has been rising faster than the central bank’s target of between zero and two percent.
For the time being, the SNB is assuming that inflation will be higher. It now expects inflation of three percent for the whole of 2022, after having estimated 2.8 percent in June. In the coming year, 2.4 (previously: 1.9) percent are expected and then 1.7 (previously: 1.6) percent in 2024.
The SNB is now somewhat more pessimistic about Switzerland’s growth prospects. In particular, the energy situation in Europe, the loss of purchasing power caused by inflation and the tighter financing conditions would have a braking effect on the economy, as it was said. It now expects gross domestic product (GDP) to increase by around two percent in 2022 (previously: around 2.5 percent).
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