Swiss National Bank ends Europe’s subzero rate era with 75 basis-point hike

ZURICH – The Swiss National Bank (SNB) raised interest rates by 75 basis points to bring borrowing costs above zero for the first time in almost eight years, following recent moves in the euro region. 

The hike by officials led by Thomas Jordan takes Switzerland’s policy rate to 0.5 per cent and is their most aggressive tightening action in two decades. 

With officials avoiding an even bigger 100 basis-point hike, the Swiss franc tumbled as much as 1.6 per cent against the euro after the decision.

“It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term,” Mr Jordan told reporters in Zurich on Thursday, adding that he and his fellow policy makers are willing to intervene in currency markets if needed.

The Swiss decision ends Europe’s decade-long experiment with negative borrowing costs. Globally, the only central bank left with subzero policy is now the Bank of Japan, which earlier on Thursday held its benchmark at -0.1 per cent.

Also on Thursday, Norway’s central bank raised its key rate by a half point to 2.25 per cent and signaled that its tightening may be nearing an end as officials see the economy responding to their action against inflation. 

The policy rate, which is now at the highest since 2011, will probably be raised again in November, Norges Bank said. 

“Monetary policy is starting to have a tightening effect on the Norwegian economy,” officials led by Ida Wolden Bache said in a statement. “This may suggest a more gradual approach to policy rate setting ahead.” 

The SNB hike is the second move by policy makers in Zurich to confront inflation in a year when about 90 counterparts have also raised rates. Around half of them have acted with at least 75 basis points in one shot, with the Federal Reserve delivering a third such step on Wednesday. 

The SNB has now matched the European Central Bank’s 1.25 percentage point of tightening since July.

Zurich policy makers are trying to contain inflation that is above 3 per cent, but remains a fraction of that of surrounding countries. Switzerland’s economy has long been more resilient too. Economists surveyed by Bloomberg reckon it will keep growing until the end of next year, while slowdowns are predicted for the euro zone’s three largest economies.

In new economic forecasts presented Thursday, the SNB cut its forecast for this year’s growth to about 2 per cent from around 2.5 per cent predicted in June. It now sees inflation averaging at 3 per cent in 2022 before slowing to 2.4 per cent next year and 1.7 per cent in 2024.

Inflation “is likely to remain at an elevated level for the time being,” Mr Jordan said on Thursday.

One reason for the lower inflation rate is Switzerland’s strong currency. Since early 2021, the franc has appreciated against the euro, and it breached parity with that currency in recent months. This makes exports of Swiss companies to the bloc more expensive, but also limits imported inflation. BLOOMBERG