The Swiss central bank on Thursday carried out the biggest hike in its key interest rate ever after the US Federal Reserve and other central banks around the world took aggressive steps to curb inflation.
The Swiss National Bank said it could not rule out further hikes beyond the three-quarters-of-a-point increase “to ensure price stability over the medium term.” It aims to cool inflation, which stood at 3.5 percent in August.
The interest rate rose from minus 0.25 percent to 0.5 percent, ending several years of negative interest rates in Switzerland – a testament to Switzerland’s stable growth, low inflation and attractiveness as a safe haven for assets.
Essentially, this negative interest rate environment meant that people who parked assets in Switzerland paid for the privilege, a counterintuitive idea for many investors who might expect a return on their savings.
Some economists have said that Switzerland appears less vulnerable to inflationary pressures because the cost of living in the prosperous Alpine country is relatively high compared to its main neighbours, the European Union countries.
Inflation across the 19 countries using the euro currency hit a record 9.1 percent in August.
A renewed appreciation of the Swiss franc against the euro, for example, has prompted many Swiss consumers to cross the border to neighboring countries such as France or Germany to buy petrol and other consumer goods, which are suddenly relatively cheaper there.
The Swiss bank’s move comes a day after the Fed hiked interest rates by three-quarters of a point for the third consecutive month and signaled more hikes were imminent.
The European Central Bank also hiked by that amount much earlier this month and the Bank of England is under pressure to be aggressive at its Thursday meeting.
Switzerland is not a member of the EU, but most of its economic activity is conducted with the huge 27-state bloc.
Relations between Switzerland and the EU have been strained in recent years, amid more than 100 bilateral deals that the two sides have been fighting to renew and calls by some populist politicians in Switzerland to limit the number of EU citizens who live and work in the country.
A concept that unsettles Brussels, because one of the central principles of the EU is the free movement of people within the territories of its member states and with other partners in the so-called Schengen zone.
https://www.independent.ie/business/world/swiss-central-bank-enacts-biggest-ever-hike-to-key-rate-42008963.html The Swiss central bank decides on the largest interest rate hike to date