Central bank raises interest rates again

The Swiss National Bank controls Swiss monetary policy Keystone

The Swiss National Bank (SNB) has increased its key interest rate by 25 basis points, continuing its gradual monetary tightening campaign.

It comes amid healthy predictions for Switzerland’s economic development, which the bank says has become more broad-based.

In a move that had been widely expected, the SNB said it had raised the target for its benchmark rate – the three-month Swiss franc London Interbank Offered Rate or Libor – to 1.25 per cent from one per cent.

It shifted the target band to 0.75-1.75 per cent from 0.50-1.50 per cent and is aiming for the mid-point – 1.25 per cent.

As long as the economy continues to perform as expected, the National Bank will further pursue the “gradual adjustment” of its monetary policy, said the SNB in a statement.

The 0.25 per centage point increase was the second such rise in three months. In December the rate was also increased by a quarter per cent.

“The SNB has prepared the market for it,” said Alois Bischofberger, chief economist of the Credit Suisse Group, adding that the rise was a step towards normalisation of rates.

“An economic growth of two per cent needs another interest environment,” he added.

The news was welcomed by Rudolf Walser, chief economist at the Swiss Business Federation (economiesuisse).

He added that he was pleased that the SNB had decided not to go for a more aggressive rise of 0.5 per cent.

For its part, the house owners’ association said it hoped that banks would wait before raising mortgage rates. Such a move could have a negative effect on the consumer climate, it said.

Healthy economy

The SNB said it expected the economy to expand by “a little more than two per cent” this year, unchanged from its previous forecast.

It added that economic development had gained further momentum and was increasingly broad-based.

The bank adjusted its forecast for inflation this year slightly upwards to one per cent, citing pressure mainly from higher oil prices.

Looking ahead, it predicts inflation to be at 1.1 per cent in 2007, down from a previous 1.2 per cent, and at 2.0 per cent in 2008.

Credit Suisse revised its GDP forecast upwards on Thursday to 2.1 per cent from its previous figure of 1.7 per cent.

Earlier this month, the State Secretariat for Economic Affairs in Bern said that preliminary figures showed that the economy grew by 1.9 per cent last year, confirming the economic upswing.

swissinfo with agencies

Key facts

The Swiss National Bank conducts the country’s monetary policy as an independent central bank.
Its other tasks are facilitating payment transactions and issuing banknotes.

In brief

The Libor (London Interbank Offered Rate) is a key tool of the Swiss National Bank.

It designates the interest rates fixed every business day by the British Bankers’ Association.

These are the rates at which major banks are prepared to grant unsecured money market loans to each other.