Interest rates expected to rise in Switzerland

The Swiss National Bank (SNB) is expected to raise interest rates at its twice yearly policy presentation this Thursday. The expected increase would help stem a risk of inflation as the Swiss economy booms.

In the first quarter of this year, the economy grew by four per cent, with the unemployment rate falling to 1.9 per cent in May – an eight year low.

“The fact that the Swiss economy is doing pretty well leads to one conclusion,” Andreas Huffert, economist at Warburg Dillon Reed, told swissinfo, “There might be some inflationary pressure in the near future.”

Most economists expect an increase in interest rates of between 25 and 50 basis points. The SNB conducts its monetary policy by setting a target range for its three-month LIBOR lending rate, which is currently set at 2.5 to 3.5 per cent.

The major impetus for inflationary pressure has been the increasing cost of oil on international markets, coupled with the strong dollar increasing the cost of imports.

“The Swiss National Bank is doing a good job by getting rid of some of the fuel for inflation in Switzerland and acting before inflation can rise,” Huffert added.

The Swiss franc has been strengthening on the foreign exchange market in expectation of a rise in interest rates Thursday.

by Tom O’Brien