Due to inflationary pressures, the Swiss National Bank (SNB) raised rates by 0.5% to 1.5%. SNB may increase rates further for price stability and participate in the foreign exchange market as needed.
Swiss National Bank Raises Policy Rate By 0.5% In Response To Inflationary Pressures
In a recent press release, the SNB declared an increase of 0.5 percentage points in its latest policy rate change, bringing it to 1.5%. According to the apex bank, this move is a reaction to the inflationary pressures observed in recent months.
The press release reads, “beginning March 24, 2023, the new policy rate will be in effect. Banks’ sight deposits to the SNB will be reimbursed at 1.5%, up to a particular limit. Any sight deposits above this limit will attract an additional interest rate of 1.0%, representing a 0.5 percentage point decrease compared to the SNB policy rate.”
Recent occurrences connected to Credit Suisse filled last week. Yet, the Swiss government, FINMA, and the SNB intervention have stopped the turmoil.
To provide financial help, the SNB supplied sufficient liquidity in Swiss francs and foreign currencies and supported it with collateral and interest.
Higher Inflation Projection Than In December Despite 1.5% Rate Increase
Inflation has grown since the start of the year, standing at 3.4% in February. This figure is beyond the range the SNB considers price stability.
This most recent escalation in inflation is mainly due to higher charges for energy, tourism services, and food. The SNB’s new inflation projection assumes that the SNB policy rate will be 1.5% throughout the forecast period.
Despite the SNB’s decision to raise rates, the new forecast for mid-2025 is still higher than in December due to increased inflationary pressure from abroad and the contagion effects.
The outlook projects a yearly inflation rate of 2.6% in 2023, 2.0% in 2024, and 2025, concluding at 2.1%. If the SNB had not raised the policy rate, the inflation estimate would have been higher in the medium term.
Global Economy Stagnates While Inflation Soars In 2022
In the Q4 of 2022, the world economy experienced very little growth, while inflation in many countries was significantly higher than central banks projected. Consequently, central banks have implemented stricter monetary policies.
According to economic experts, the global economy will likely remain stagnant in the upcoming quarters, and inflationary pressures will remain elevated for the foreseeable future. However, this prediction is exposed to considerable uncertainties due to recent instability in the international finance market.
In Switzerland, GDP growth leveled off in the fourth quarter of 2022. The services sector saw decreased activity while manufacturing output dropped slightly.
On a broader scale, GDP improved by 2.1% for the year while the labor market remained strong, as resources were used efficiently. Despite a slight uptick in economic performance lately, the outlook for the remainder of the year looks subdued due to a lack of foreign demand and inflation-induced loss of buying power.
