Switzerland: SNB hikes rates in June in shock move
June 16, 2022
At its meeting on 16 June the Swiss National Bank (SNB) raised its policy rate and the interest rate on sight deposits from minus 0.75%—the world’s lowest—to minus 0.25%. The decision to raise rates took markets and our panelists by surprise.
As the Bank stated in its press release, the move was “aimed at preventing inflation from spreading more broadly to goods and services in Switzerland”. Inflation has been on an upward trend in recent months in light of more elevated international commodity prices and global supply constraints, and now sits at an over-decade high. The SNB revised up its own inflation forecasts markedly as a result, to 2.8% for 2022 and 1.9% for 2023. The strong domestic economy provided leeway for the hike, as did the Bank’s reduced concern over currency strength—in June’s press release there was no mention of the strength of the franc, in contrast to prior meetings.
Looking ahead, the SNB hinted at further hikes, saying: “It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilize inflation”.
Maxime Botteron, economist at Credit Suisse, commented:
“We revised our forecast for the policy rate and now expect the SNB to raise it by 0.5 percentage points in September to 0.25% and to 0.50% in December. We set our 12-month forecast at 0.50%.”
Analysts at ING were more dovish:
“Given the inflation forecasts and the economic environment, we believe that a further 25bp rate hike is to be expected this year, but we think it unlikely that the SNB will go further than that this year. In our view, once the policy rate moves to 0%, any further rate hikes would be for 2023. The SNB should therefore be less aggressive in its rate hikes than the ECB.”
Author: Oliver Reynolds, Economist