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Swiss National Bank Raises Interest Rates to 0.5% to Cool Red-hot Inflation
© Reuters
By Scott Kanowsky
Investing.com -- The Swiss National Bank has raised its policy rate into positive territory for the first time since 2014 on Wednesday in a bid to quell inflationary pressures, and said further increases "cannot be ruled out" over the medium term.
The SNB hiked borrowing costs by 75 basis points to 0.5%, up from the previous level of -0.25% set in June and in line with economists' estimates. The decision ends an eight-year era of negative rates in Switzerland, which SNB policymakers had previously argued would help stem a spike in the value of the Swiss franc.
The central bank also flagged that consumer price growth in Switzerland will likely remain elevated "for the time being" despite being relatively subdued compared to its European neighbors at 3.5% in August. The SNB predicted that average annual inflation will hit 3% in 2022 before it edges down to 2.4% in 2023 and 1.7% in 2024.
"Without today’s SNB policy rate increase, the inflation forecast would be significantly higher," it said.
Meanwhile, the SNB lowered its expectation for overall annual growth in Switzerland by roughly half a percentage point to 2%, adding that the short-term outlook has deteriorated. It warned that the uncertainty surrounding this estimate is high, as risks persist from a potential global economic downturn, gas shortages in Europe, a fall in power supplies to Switzerland, and a resurgence in Covid-19 cases.
The Swiss franc weakened against both the Euro and the dollar following the announcement.
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