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Swiss National Bank Unexpectedly Hikes Interest Rates to Combat Inflation

Published 06/16/2022, 03:41 AM
Updated 06/16/2022, 03:55 AM
© Reuters.

By Scott Kanowsky -- The Swiss National Bank has raised interest rates by 50 basis points on Thursday, running counter to some economists' expectations, but keeping in step with aggressive tightening of policy from other central banks around the world.

The SNB's policy rate now stands at -0.25%, with the central bank adding that further rises in borrowing costs "cannot be ruled out" in the foreseeable future.

In a statement, the SNB said the hike is designed to combat soaring inflation, which hit a 14-year high in Switzerland in May.

"Owing to the increased prices for energy and food, coupled with the supply bottlenecks, inflation is likely to remain high for some time. However, the importance of these factors should diminish over the medium term," the SNB said in a statement.

The central bank now sees inflation at 2.8% in 2022, 1.9% in 2023 and 1.6% in 2024 - all above the SNB's previous forecasts.

It added that global economic growth has also slumped recently due to the higher prices, as well as uncertainty from the war in Ukraine and COVID lockdowns in China.

The decision to cut rates comes despite forecasts widely expecting the SNB to keep rates steady at negative 0.75%. A poll of economists conducted by Reuters prior to Thursday's meeting showed many foresaw the next hike in September.

The Swiss franc strengthened against the dollar following the decision, rising 1.36% to about $1.02 as of 04:15 EST (0815 GMT). The currency also soared against the euro, up 1.99% to around €0.98.

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