The Swiss National Bank surprises financial markets by new rate rise

The SNB increased its target range for its three month London Interbank Offered Rate (LIBOR) by 75 points to 2.5 to 3.5 per cent. It said it wanted to keep market rates in the middle of the new range.

The SNB increased its target range for its three month London Interbank Offered Rate (LIBOR) by 75 points to 2.5 to 3.5 per cent. It said it wanted to keep market rates in the middle of the new range.

Its statement said that economic growth was now forecast to be well above the two per cent previously foreseen for the current year. “Given the dynamic economic development and the continued weak trend of the Swiss franc against the US dollar, the inflationary risks have increased significantly,” said the statement.

But the size and timing of the rate increase took the markets by surprise. “Most had expected no change,” said UBS Warburg economist, Andreas Hoefert, “and others expected 25 basis points but no one was going for this sort of rise”.

But the move is likely to be welcomed by the markets. “It’s a relief”, says Hoefert, “and it’s also good news for the Swiss franc. The SNB has clearly shown independence and autonomy from the European Central Bank.” The franc has tended to shadow the Euro’s plunge against the US currency in recent months.

Most analysts expect no further interest rate increases until at least the autumn.

by Michael Hollingdale