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Economist says rate rise will not check growth

Bischofberger says further rate rises are in the offing

(Keystone)

Alois Bischofberger, chief economist of the Credit Suisse Group, tells swissinfo that Thursday's interest rate hike is unlikely to put the brakes on economic growth.

The Swiss National Bank (SNB) raised its key interest rate by a quarter of a percentage point – the first change since September 2004.

The national bank said it now expects Switzerland's gross domestic product to grow by just over 1.5 per cent in 2005, with inflation remaining at 1.2 per cent. The forecast compares with a previous GDP forecast of around 1.0 per cent.

The bank added that GDP was expected to grow a "little more" than two per cent in 2006, while inflation is predicted to stand at 0.8 per cent.

After the SNB announcement the Swiss franc fell slightly against the euro but rose against the dollar.

swissinfo: What is the reason behind this interest rate rise?

Alois Bischofberger: It is basically aimed at avoiding a resurgence of inflationary pressures. The SNB wants to avoid medium-term inflationary pressures given a fairly robust Swiss economy.

swissinfo: Why?

A.B.: Because inflation would be dangerous for the economy and because a surge in inflation could also have a negative impact on the exchange rate of the Swiss franc. The SNB is interested in maintaining price stability.

swissinfo: Was the increase of 25 basis points expected?

A.B.: Yes. Over the past few days some commentators were expecting the SNB to raise rates by 50 basis points, but they were in the minority.

swissinfo: How will the rise affect the Swiss economy?

A.B.: I think it will affect it only marginally. Even with this increase in interest rates, the interest rate level is still very low if you take a long-term perspective. The interest rate increase may contribute to a modest increase in market interest rates but it will have no negative consequences for economic growth in Switzerland.

swissinfo: How independent is the SNB? Does it just follow the European Central Bank (ECB)?

A.B.: The SNB is independent and many interest rate decisions taken by the SNB precede ECB decisions. But of course given the strong interdependence between the European economy and the Swiss economy, interest rates normally move in the same direction.

swissinfo: Are interest rates likely to rise even further?

A.B.: We expect two interest rate hikes in 2006 – one in spring and one in early summer – each one 25 basis points.

swissinfo: The economy appears fairly consistent and stable right now. Are any shocks expected?

A.B.: We are not expecting any big shocks – if there were shocks they would have to come from abroad, for example a new increase in oil prices or an unexpectedly strong interest rate increase in the United States. These are risks but the probability of them materialising is fairly low.

swissinfo-interview: Thomas Stephens

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.

end of infobox


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