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Inflation
Monetary Policy
The Swiss National Bank raised its policy rate for the first time in 15 years at its meeting on June 16.
The SNB’s three-member council voted to raise its interest rate from -0.75% to -0.25%, its first hike since 2007. SNB chairman Thomas Jordan said the hike was “aimed at preventing inflation from spreading more broadly to goods and services in Switzerland”.
The country’s year-on-year inflation reached 2.9% in May. Jordan said much of the increase was due to global supply bottlenecks and food and energy price increases.
But he warned there were signs that inflation was spreading to goods and services not directly affected by the war in Ukraine or the Covid-19 pandemic: “In the current environment, price increases are being passed on more quickly – and are also being more readily accepted – than was the case until recently.”
Jordan said the SNB could not rule out further rate hikes “in the foreseeable future” in order to create medium-term price stability. He said the central bank was “also willing to be active in the foreign exchange market as necessary”.
The SNB issued a new conditional inflation forecast, based on the assumption that its policy rate would stay at -0.25% until the end of 2024. It now forecasts annual average inflation of 2.8% for this year, falling to 1.9% in 2023 and 1.6% in 2024.
“Without today’s SNB policy rate increase, the inflation forecast would be significantly higher,” said Jordan. The SNB forecasts GDP growth of around 2.5% for 2024, with unemployment staying low.
The SNB also lowered the threshold factor it uses to exempt banks’ sight deposits with it from negative interest. It said this would ensure that “secured short-term Swiss franc money market rates are close to the SNB policy rate”.
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