Switzerland exits negative interest rate era

The price of goods has been rising for shoppers in Switzerland. Keystone / Laurent Gillieron

The Swiss National Bank has raised interest rates into positive territory for the first time in seven years with a 0.75% hike on Thursday.

Switzerland’s central bank responded to the growing threat of inflation by moving the headline rate to 0.5%. This applies from September 23, 2022.

“In doing so, it is countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected,” the SNB said in a press statementExternal link on Thursday. 

+ How Switzerland is dealing with rising prices

Swiss inflation hit 3.5% in August, compared to the same month in 2021, despite the SNB raising rates by half a percent in June.

The central bank now expects inflation to reach 3% this year (up from a 2.8% prediction in June) and 2.4% in 2023 (1.9% June forecast).

SNB chair Thomas Jordan said the central bank will steer a path between controlling both consumer prices and the strength of the franc relative to other currencies.

“It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term,” he said. “To provide appropriate monetary conditions, we are also willing to be active in the foreign exchange market as necessary.”

“There is a likelihood that monetary policy will be further tightened,” Jordan told reporters.

+ Why the strong franc no longer scares Swiss businesses

Interest rates rising globally

The SNB’s decision closely followed a 0.75% rate hike by the US Federal Reserve. The Bank of England raised rates by 0.5% on Thursday.

However, the Bank of Japan opted on Thursday to keep its interest rate in negative territory.

The SNB first imposed a negative rate of -0.75% in 2015 when it was forced to abandon a policy of defending the Swiss franc with a peg to the euro.

Negative rates have been a feature since then with the global economy going through a rocky period.

But the recent rising cost of goods and services has persuaded many central banks to recently reverse policy.

Swiss government economists have lowered their forecast for economic growth this year to 2% from a previous prediction of 2.6% in June.

The forecasters blamed the deteriorating situation on the rising cost of energy, which is expected to have a knock-on effect for many consumer goods.