Surprise Rate Hike at Swiss National Bank

June 16, 2022

Today’s biggest central bank surprise came from the Swiss National Bank, where inflation is at its highest since September 2008 but tame at 2.9% compared to inflation in other countries. Swiss officials have kept very low interest rates in order to keep the Swiss franc from climbing to very overvalued levels. For several years prior to January 2015, the central bank used automatic forex intervention to cap the currency at 1.2 per euro. When that fixed parity was then lifted, the policy was slashed by 75 basis points to negative 0.75%, and market analysts weren’t expected a change at this month’s scheduled quarterly policy review.

But Swiss officials concluded that Swiss GDP is likely to expand by 2.5% this year in spite of the Ukraine war and other depressants and decided to embark on a rate tightening cycle, starting with a 50-basis point increase to -0.25%. Revised CPI inflation projections highlight the urgency of stopping inflation’s climb. CPI inflation is projected to crest at 3.2% next quarter, instead of at 2.2%. Whereas officials were projecting inflation back below 1.0% by the second quarter of 2023, the new forecasts predicts it will be then at 1.9%  and foresee such slightly above 2.0% in the first quarter of 2025.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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