SNB Lifts Rate By 25 Bps, Signals More Tightening

The Swiss National Bank continued its policy tightening with yet another hike to its interest rates, but at a slower pace as expected, and signaled more such moves to counter the rising inflationary pressures.

Switzerland’s central bank hiked its policy rate by 25 basis points to 1.75 percent on Thursday. The new rate applies from June 23.

This was the fifth straight rate hike. However, the bank slowed the pace of rate hikes from half a percentage point increase in both March this year and in December 2022, and by 75 basis points in September 2022.

“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” the bank repeated.

The central bank reiterated that it remains willing to be active in the foreign exchange market as necessary. In the current situation, the bank said it is focused on selling foreign currency.

Inflation declined notably in recent months due to the lower increase in prices of imported goods. Inflation hit a 15-month low of 2.2 percent in May.

The SNB downgraded the inflation outlook for this year to 2.2 percent from 2.6 percent. The lower oil and gas prices and the stronger Swiss franc will have a dampening effect over the short term, the bank said.

However, next year’s inflation outlook was revised to 2.2 percent from the previous projection of 2.0 percent. For 2025, the bank forecast a rate of 2.1 percent.

Without the latest tightening, the inflation forecast would be even higher over the medium term, the bank added.

The SNB statement and upward revision to inflation forecasts for 2024 and 2025 strongly suggest that there will be at least one more hike in this cycle, Capital Economics’ economist Andrew Kenningham said.

Last week, the US Federal Reserve paused its rate hike cycle but remained hawkish. On Wednesday, Fed Chair Jerome Powell said there was a long way to go in the inflation fight.

The European Central Bank raised its key rates by another quarter point this month and signaled another hike in July after the core inflation projections were upgraded mainly on account of the rising labor cost.

The Bank of England is set to announce its policy decision later on Thursday. The bank is widely expected to raise the rate by at least 25 basis points after official data showed on Wednesday that the UK headline inflation unexpectedly remained steady at 8.7 percent.

The Swiss economy is forecast to log a moderate growth for the remainder of the year. The growth in gross domestic product is seen at around 1 percent due to subdued foreign demand, high inflation and restrictive financial conditions, the SNB said.

The major risk to the outlook was cited as more pronounced economic slowdown abroad.

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