SNB hikes rate 50 basis points after sealing Credit Suisse deal
THE Swiss National Bank (SNB) raised its interest rate by 50 basis points and signalled more to come, as it resumed its inflation fight just days after the downfall of the country’s second-biggest bank became the epicentre of global financial turmoil.
Officials lifted the benchmark to 1.5 per cent, an outcome predicted by most economists before Credit Suisse’s forced takeover by larger rival UBS clouded the outlook with worsened market turbulence earlier this week.
“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” officials said in a statement. “To provide appropriate monetary conditions, the SNB also remains willing to be active in the foreign exchange market.”
The quarterly decision on Thursday (Mar 23) by policymakers led by Thomas Jordan matches that of the European Central Bank, which raised by the same amount last week, and follows Wednesday’s move by the Federal Reserve to hike by a quarter point.
By pushing through with a large step, the SNB signalled that its alarm about inflation outweighed any concerns after the market’s reaction to the Swiss deal on Sunday. The terms of the deal had triggered a tightening of financial conditions for banks throughout Europe. Officials acknowledged that the turmoil had been a distraction.
“Measures announced at the weekend by the federal government, Finma (Swiss Financial Market Supervisory Authority) and the SNB have put a halt to the crisis,” they said. “The SNB is providing large amounts of liquidity assistance in Swiss francs and foreign currencies. These loans are backed by collateral and subject to interest.”
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While consumer-price growth in Switzerland is less than half of the surrounding euro area and is low by international standards, an unexpected acceleration in February and worries of potential wage pressures prompted heightened concern by officials.
The move allows Switzerland to partially narrow the difference with the higher rates of the ECB and the Fed, whose policymakers set monetary policy twice as often. That means it could potentially help to shore up the franc against imported price pressures.
Benchmark borrowing costs in Switzerland remained 150 basis points lower than in the euro area.
The SNB projected inflation of 2.6 per cent in 2023, slowing to 2 per cent in the following two years. That compares with prior forecasts for 2.4 per cent this year and 1.8 per cent in 2024.
After unexpectedly failing to grow in the final quarter of last year, Switzerland is still seen likely to escape a recession. The economy is likely to expand around 1 per cent this year, down from 2.1 per cent in 2022.
Jordan, who will hold a press conference in Zurich, is likely to face the most questions on the Credit Suisse deal that he helped to oversee last weekend. It included a controversial wipeout of Additional Tier-1 bonds, provoking global market ructions before regulators elsewhere reassured investors that they would not do the same. BLOOMBERG
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