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Switzerland's Central Bank Hikes Interest Rate By 1/2 Percentage Points Amidst Inflation Fears

Switzerland's Central Bank Hikes Interest Rate By 1/2 Percentage Points Amidst Inflation Fears

The Swiss National Bank said the rate hike would take effect Friday. The Swiss franc, which is generally considered a stable currency, jumped against the euro and the US dollar in currency markets after the announcement. 

Source: Shutterstock
Source: Shutterstock

Switzerland's central bank announced a one-half of a percentage point increase to a key interest rate Thursday, the first increase in nearly 15 years. It indicated the move was an attempt to ward off inflationary pressures as food and fuel prices rise worldwide.

The Swiss National Bank said the rate hike would take effect Friday. The Swiss franc, which is generally considered a stable currency, jumped against the euro and the US dollar in currency markets after the announcement. 

The bank said the rate on sight deposits would be increased by a half-point, to a negative 0.25 per cent. Swiss interest rates have been negative for months, indicating that inflation had not been a worry of monetary policymakers in the rich Alpine country.

The Swiss central bank last changed interest rates in January 2015, but the last increase was in September 2007, it said. 

The bank said it “cannot rule out” that other rate hikes might be necessary for the future. Annualized inflation came in at 2.9 percent for Switzerland in May, it said. 

Global economic growth has slowed “markedly” in recent months, the bank said, in part due to inflation that has weighed on consumers' pocketbooks, the fallout from Russia's war in Ukraine, and coronavirus lockdowns in China. Supply bottlenecks have increased the prices of some goods, it said. 

The bank said it “assumes that energy prices will remain high for the time being, but that there will not be an acute energy shortage in the major economic areas."

“The positive development of the economy should thus continue overall,” the national bank said in a statement. 

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