The Swiss central bank raises interest rates due to strong inflationary pressures

Swiss National Bank (SNB), the central bank of Switzerland.

COFFRINI FABRIC | AFP | Getty Images

The Swiss National Bank raised its benchmark interest rate on Thursday to 0.5%, a shift that puts an end to an era of negative rates in Europe.

The 75 basis point increase follows an increase to -0.25% on June 16, which was the first rate hike in 15 years. Previously, the Swiss central bank had kept rates stable at -0.75% since 2015.

It comes after inflation in Switzerland hit 3.5% last month, the highest rate in three decades.

The bank said the official rate hike was “countering the renewed rise in inflationary pressure and the spread of inflation on goods and services that have so far been less affected.”

He added that further official rate hikes “cannot be ruled out”.

The increase is in line with economists’ expectations, according to a Reuters poll.

The Swiss franc weakened dramatically against the dollar and the euro following the rate hike. At 9:15 am London time, the dollar was 1.24% higher than the Swiss currency and the euro 1.6%.

Earlier this week, the Swiss franc reached its strongest level against the euro since January 2015, when economists began speculating on the prospect of a 75 basis point rise.

Switzerland had been the last remaining country in Europe with a negative official rate as the region’s central banks had aggressively raised rates to cope with rising inflation.

Japan is now the last major economy with a central bank in negative territory after the Bank of Japan decided to keep interest rates unchanged at -0.1% on Thursday.

Denmark, meanwhile, ended its nearly ten-year negative streak on September 8, when the central bank raised the key rate by 0.75 percentage points to 0.65%.

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Most recently, the Swedish central bank raised the interest rate to 1.75% on September 20. The 100 basis point increase came when the Riksbank warned that “inflation is too high”.

The European Central Bank jumped above zero when it raised rates to fight the surge in inflation on 8 September.

The ECB may continue to raise rates, but future hikes will not be as drastic as the most recent 75 basis point hike on 9 September, according to ECB Governing Council member Edward Scicluna.

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