Sourced: Cnbc.com
Switzerland had been the last remaining country in Europe with a negative policy rate as the region’s central banks have been aggressively increasing rates to tackle soaring inflation.Switzerland no longer has the world’s lowest interest rates. With inflation running high in many countries and central banks rapidly hiking interest rates, the Swiss National Bank (SNB) raised its key policy rate out of negative territory in September for the first time since January 2015. The last time the bank raised interest was in 2007.While inflation in Switzerland came in at 3.5% in August, above the SNB’s target of 0%-2%, prices are rising much higher in other countries – around 9%-10% in the eurozone, US and UK.
At its meeting on 22 September the Swiss National Bank (SNB) raised its policy rate from minus 0.25% to 0.50%, its largest hike ever. The move came shortly after the European Central Bank (ECB) also hiked rates by 75 basis points earlier in September.
As the Bank stated in its press release, the hike was aimed at “countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected”. Albeit still extremely mild by European standards, inflation has been running above the SNB’s 2% target since February, and rose to a multi-decade high in August. A tight labor market—the unemployment rate is currently at the lowest level in over 20 years—was likely a further driver behind the decision. Moreover, the ECB’s recent hawkish policy move provided the leeway for the SNB to act aggressively without provoking a sharp appreciation of the franc.So what are the drivers for higher interest rates in Switzerland? Will the SNB raise rates further? In this article we look at the outlook for Swiss interest rates.
SNB’s role in Swiss monetary policy
The Schweizerische Nationalbank (Swiss National Bank) is the central bank of Switzerland, tasked with implementing the country’s monetary policy as an independent entity. The bank’s mandate is to maintain price stability, meaning a low and stable rate of inflation.The SNB implements its monetary policy by setting the key Switzerland interest rate as a reference for the country’s financial institutions, to keep short-term Swiss franc (CHF) money market rates close to the policy rate. The bank also intervenes in the foreign exchange market as necessary to influence monetary conditions by managing the country’s foreign currency reserves.The SNB issues Switzerland’s banknotes and coins and is involved in the Swiss Interbank Clearing (SIC) payment system for cashless payments.
SNB ends Europe’s negative rate era
Sourced: Tradingeconomics.com
The SNB surprised the financial markets on 16 June when it raised Swiss bank rates for the first time in 15 years, moving the policy rate up by 50 basis points to -0.25% and indicating that there would be more hikes to come. The SNB makes monetary policy decisions quarterly, rather than monthly like some other central banks, so the next hike came on 22 September. It moved the rate up by 75 basis points to 0.5%, putting an end to negative interest rates in Switzerland.
Future of Swizz Economy
The bank further forecast the SNB could continue raising rates in 2023, to 1% in the first quarter, 1.25% in the second quarter and 1.50% in the third quarter. SocGen forecasts a further rise in Swiss banking interest rates to an average of 1.75% from 2024 to 2026, according to the forecast data.
This Youtube video by Capital.com does a great job explains the current situation, https://www.youtube.com/watch?time_continue=6&v=uDR7FWroZOE&feature=emb_logo&ab_channel=Capital.com&themeRefresh=1
By Sunny Wadhwani
November 6th, 2022
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