Swiss National Bank ends Europe's sub-zero rate era with 75 basis point hike

ZURICH - The Swiss National Bank (SNB) raised interest rates by 75 basis points as officials sought to follow recent moves in the euro region with their most aggressive tightening action in two decades.

The hike by officials led by SNB president Thomas Jordan takes Switzerland's policy rate to 0.5 per cent, above zero for the first time in almost eight years.

Policymakers said they cannot rule out further rate hikes, and said they are willing to intervene in currency markets if needed. The Swiss franc weakened after the announcement.

The decision ends Europe's decade-long experiment with negative borrowing costs. Globally, the only central bank now left with a sub-zero policy is the Bank of Japan, which earlier on Thursday held its benchmark at minus 0.1 per cent.

The SNB hike is the second move by policymakers in Zurich to confront inflation in a year when about 90 counterparts have also raised rates. Around half of them have acted with at least 75 basis points in one shot, with the United States Federal Reserve delivering a third such step on Wednesday.

SNB has now matched the European Central Bank's (ECB) 1.25 percentage point of tightening since July.

Zurich policymakers are trying to contain inflation, which is above 3 per cent but remains a fraction of that of surrounding countries. Switzerland's economy has long been more resilient, too.

Economists surveyed by Bloomberg reckon it will keep growing until the end of 2023, while slowdowns are predicted for the euro zone's three largest economies.

In new economic forecasts presented on Thursday, SNB cut its forecast for 2022's growth to about 2 per cent, from around 2.5 per cent predicted in June. It now sees inflation averaging at 3 per cent in 2022, before slowing to 2.4 per cent in 2023 and 1.7 per cent in 2024.

One reason for the lower inflation rate is Switzerland's strong currency. Since early 2021, the franc has appreciated against the euro, and it breached parity with that currency in recent months. This makes exports of Swiss companies to the bloc more expensive, but also limits imported inflation.

SNB's next rate decision takes place on Dec 15. Unlike the ECB, Switzerland's central bank convenes only quarterly.

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A version of this article appeared in the print edition of The Straits Times on September 23, 2022, with the headline Swiss National Bank ends Europe's sub-zero rate era with 75 basis point hike. Subscribe