On Thursday, the Swiss National Bank (SNB) raised its key interest rate more than ever before. This follows the US Federal Reserve and other central banks around the world trying to control inflation with aggressive measures.
“It cannot be ruled out that further interest rate hikes will be necessary to ensure price stability in the medium term,” said SNB Governing Board Chairman Thomas Jordan on Thursday.
It aims to bring inflation down, which stood at 3.5% in August, from a record 9.1% in the EU’s 19 neighboring countries that use the euro.
The Swiss interest rate was raised from minus 0.25% to 0.5%, ending several years of negative interest rates – a testament to Switzerland’s stable growth, low inflation and attractiveness as a safe haven for assets.
Essentially, this negative interest rate environment has meant those who have parked their wealth in Switzerland have paid for the privilege – a counterproductive idea for many investors looking for a return on their savings.
Because the cost of living in the prosperous Alpine country is relatively high compared to its main neighbors, it was long believed that inflation would not hit Switzerland as badly.
“Inflation rose to 3.5% in August and is likely to remain above that for some time. The recent increase in inflation is mainly due to higher prices for goods, especially energy and food,” the SNB said.
For example, the recent appreciation of the Swiss franc against the euro has prompted many Swiss consumers to travel to neighboring countries such as France or Germany to buy petrol and other consumer goods, which are much cheaper there.
Jordan said the bank would “intervene in FX markets to manage monetary conditions” if “exchange rate momentum is high enough for the franc to appreciate sharply.”
The Swiss currency fell more than 1% against the euro following the bank’s announcement, with economists saying some investors were expecting an even larger rise.
The move came a day after the US Federal Reserve hiked interest rates by three quarters of a point for the third straight month, signaling that more rate hikes were imminent.
The European Central Bank also raised interest rates by the same amount earlier in the month and the Bank of England was under pressure to take aggressive action at Thursday’s meeting.
Switzerland is not a member of the European Union, but most of its economic activities are conducted with the European Union.
Relations between Switzerland and the European Union have been strained in recent years, partly because of the more than 100 bilateral agreements that both sides have fought to renew and because of calls by some populist politicians in Switzerland for a ban on EU citizens To give. The number can be limited. Live and work in the country. This concept worries Brussels a lot, since one of the key principles of the European Union is the free movement of people within the territory of its member states and with other partners in the so-called Schengen area.