The Swiss National Bank (SNB) ended Thursday at nearly eight years of negative rates. In order to counter inflation, the issuing institution tightened its monetary policy and indicated that it would continue to intervene “if necessary” in the foreign exchange market.
The Swiss central bank raised its key rate by 0.75 percentage points, from -0.25% to +0.5%. On June 16, the issuing institution took a first step towards a normalization of monetary policy with a rebound of half a point.
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, the issuing institution “against the inflationary pressure which has again increased”. The SNB warned that it was not “excluded that further rate hikes are necessary”.
Vigilance regarding the franc
Regarding the franc, the Swiss central bank stressed that it remained “willing to be active on the foreign exchange market if necessary in order to guarantee appropriate market conditions”. The SNB could therefore buy or sell currencies to control the evolution of the national currency.
Following these announcements, the franc weakened significantly against the euro. While the currency pair had fallen below 0.95 EUR/CHF in the early morning, it rose to 0.9617 EUR/CHF at 09:47.
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The Swiss central bank had introduced negative rates for the first time in December 2014, by lowering the fluctuation margin of the Libor, its reference rate at the time. A few weeks later, on January 15, 2015, the latter went completely into negative territory, after the abolition of the minimum rate against the euro.
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The strong franc as a shield
The SNB then wanted to prevent an appreciation of the Swiss franc by discouraging foreign investment in the Swiss currency, but also to stimulate consumption. When the cost of money is low, businesses can more easily borrow from banks.
But with inflation at its highest in almost 30 years, defending a strong franc is no longer a priority. It even makes it possible to contain the rise in prices, despite the negative impact on exports. A 10% decline in the euro-franc exchange rate reduces inflation in Switzerland by half a percentage point, according to Credit Suisse estimates.
In fact, inflation has remained contained so far compared to other countries. The overall consumer price index for August rose by 3.5% over one year in Switzerland, against 9.1% in the euro zone and 8.3% in the United States.
>> Also listen to Arthur Jurus analyze Thursday evening in the program Forum the challenges of the return of positive rates:
Inflation projections revised upwards
The Swiss National Bank (SNB), however, is revising upwards its projections for inflation for the current year and the following two. The inflation should reach 3.0% in 2022, against 2.8% at the June point, 2.4% (1.9%) in 2023 and 1.7% (1.6%) in 2024.
These estimates are based on the assumption of a key rate – which the SNB has just propelled into positive territory – maintained at 0.5%.
The growth forecast in 2022, on the other hand, is moderate at 2.0%, against 2.5% previously. The issuing institute noted a significant slowdown in the global economy.
A slowdown in the global economy, a worsening gas shortage in Europe and an electricity shortage in Switzerland are the biggest risks.
This increase in the key rate by the SNB comes in a global context of monetary tightening in order to counter the surge in inflation. On Wednesday evening, the US Federal Reserve (Fed) tightened its monetary policy again and warned that it would have to tighten further, which will be painful for households.
The Fed thus raised its main key rate by three-quarters of a percentage point, which now stands in a range of 3.00 to 3.25%.
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