interest rate raised
The Swiss central bank is not deterred by the banking crisis
03/23/2023 10:33 am
The state-orchestrated takeover of Credit Suisse by UBS made headlines at the weekend. The Swiss National Bank returned to normal business a few days later – and increased the key interest rate. Investors are not surprised by the decision.
The Swiss National Bank (SNB) is raising interest rates again due to renewed inflationary pressure and despite the recent turbulence in the banking sector. The SNB key interest rate will be raised by 0.5 percentage points to 1.5 percent, as the central bank announced. According to the central bank, it cannot be ruled out that additional interest rate hikes will be necessary to ensure price stability in the medium term. The SNB is also still ready to be active in the foreign exchange market if necessary. For several quarters, foreign exchange sales have been in the foreground.
The majority of economists surveyed by Reuters in the run-up to the SNB’s quarterly monetary policy assessment had forecast a rate hike of 0.5 percentage points. It was the fourth rate hike in a row. Last summer, the SNB tightened interest rates by half a percentage point for the first time in fifteen years. At the time, it was still clearly negative at minus 0.75 percent. Since the SNB’s last monetary policy assessment in December, inflation in Switzerland has risen sharply again. At 3.4 percent, it was well above the SNB target range of 0 to 2 percent.
The Swiss franc temporarily gained strength after the interest rate hike. The dollar lost against the national currency, slipping 0.6 percent to CHF 0.9118. After the decision, investors on the bond markets threw two-year Swiss bonds out of their depots. The yield on short-dated bonds rose accordingly to a weekly high of 1.173 percent.
Credit Suisse recently caused a financial tremor in the Confederation: At the weekend, the badly hit financial institution fled to the arms of UBS in a rescue operation orchestrated by the government. The larger rival, under pressure from central banks, regulators and the Swiss government, agreed to a CHF 3 billion takeover, creating a global banking giant. As part of their merger, the two financial institutions could access aid from the state and the SNB of up to around 260 billion francs.