Swiss National Bank ends negative interest rate –

The Swiss National Bank (SNB) ended Thursday at almost eight years of negative rates. To combat 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 the first step towards the normalization of monetary policy with a rebound of half a point.

>> Read more: The SNB raised its key rate and raised inflation forecasts

By this decision, the issuing institution “against the inflationary pressure that has risen again”. The SNB warned that it had not “ruled out that a further rate increase would be necessary”.

Beware of the franc

Regarding the franc, the Swiss central bank emphasized that it remains “ready to be active in the foreign exchange market if necessary to guarantee appropriate market conditions”. So the SNB can 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 fell below 0.95 EUR / CHF in the early morning, it rose to 0.9617 EUR / CHF at 09:47.

>> See also: the evolution of the franc against the euro over 10 years

The Swiss central bank introduced negative rates for the first time in December 2014, by lowering the fluctuation margin of Libor, its reference rate at the time. A few weeks ago, on January 15, 2015, the latter completely went into negative territory, after the elimination of the minimum rate against the euro.

>> Read more: Leaving the floor rate against the euro upset markets and The Swiss National Bank introduced a negative interest rate

The strong franc as a shield

The SNB then wants to prevent an appreciation of the Swiss franc by discouraging foreign investment in the Swiss currency, but also to stimulate consumption. When the amount of money is low, businesses can easily borrow money from banks.

But with inflation at its highest in nearly 30 years, protecting a strong franc is no longer a priority. It even made it possible to prevent the rise in prices, despite the negative impact on exports. A 10% drop 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 general consumer price index for August rose by 3.5% a year in Switzerland, against 9.1% in the euro zone and 8.3% in the United States.

>> Also listen to Arthur Jurus who analyzes on Thursday night in the program Forum the challenges of returning to positive prices:

The challenges of returning to positive rates: interview with Arthur Jurus / Forum / 6 min. / today at 6:00 pm.

Inflation projections have been revised upwards

The Swiss National Bank (SNB), however, revised upward its estimates for inflation for the current year and the next two. 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 recently pushed into positive territory – remaining at 0.5%.

The growth forecast for 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.

The global economic slowdown, the worsening gas shortage in Europe and the electricity shortage in Switzerland are the biggest risks.

Global context

This increase in the key rate of the SNB comes in a global context of monetary tightening to combat rising inflation. On Wednesday night, the US Federal Reserve (Fed) tightened monetary policy again and warned that further tightening would be necessary, which would be painful for households.

The Fed thus raised its main key rate by three-quarters of a percentage point, which currently stands at 3.00 to 3.25%.

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