Swiss central bank hikes interest rate to counter ‘spread of inflation’

The SNB said it was raising its benchmark interest rate to counter “increased inflationary pressure and a further spread of inflation”. Keystone / Anthony Anex

The Swiss National Bank (SNB) increased its benchmark interest rate on Thursday for the third time this year, taking it to 1%.

The SNB increased its policy rate and the rate it charges on sight deposits to 1.0% from the 0.5% level set in September. The move follows a 0.5% interest rate hike by the United States Federal Reserve on Wednesday.

The Bank of England and the European Central Bank also raised rates by 0.5% on Thursday.

Switzerland’s inflation rate remained steady at 3% last month, having dropped from a three-decade high of 3.5% in August. This is below the soaring rates of neighbouring European countries but it remains well above the SNB’s target of 0-2% and is expected to remain elevated.

The SNB said it was raising its benchmark interest rate to counter “increased inflationary pressure and a further spread of inflation”.

“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” the bank said in a statementExternal link on Thursday.

The bank added that it was willing to “be active in the foreign exchange market as necessary” to stop the Swiss franc from appreciating too much against other currencies.

The interest rate hike, which comes as other central banks also tighten policy, took Swiss interest rates to their highest level since the global financial crisis, 14 years ago.

The bank said the increase has been introduced as global growth momentum has continued to slow down. “At the same time, inflation in many countries is markedly above central banks’ targets. Accordingly, numerous central banks have further tightened their monetary policy,” it said.

Swiss interest rates moved into positive territory in September for the first time since 2015. The SNB has now raised rates three times this year.