Switzerland exited the era of negative interest rates on
Thursday when its central bank joined others around the world in
tightening monetary policy more aggressively to combat resurgent
inflation, Trend reports with reference to Reuters .
The Swiss National Bank (SNB) raised its policy interest rate by
0.75 of a percentage point, ending the country's seven-and-a-half
year experiment with negative rates which sparked opposition from
its financial sector and fears of asset bubbles.
The increase to 0.5%, from minus 0.25%, followed a 50 basis
point hike in June from minus 0.75%, the SNB's first rate hike in
Swiss government bond yields fell after Thursday's move,
reversing course following an initial spike, while the franc
dropped broadly, falling against the dollar, euro and pound as
markets had priced in a 100 basis point rate hike by the SNB.
The central bank did not exclude more rate rises to come.
'It cannot be ruled out that further increases in the SNB policy
rate will be necessary to ensure price stability over the medium
term,' SNB Chairman Thomas Jordan told a news conference.
Jordan declined to give details of the timing or size of any
The SNB would also still use forex interventions, purchasing
foreign currencies to rein in an 'excessive appreciation' of the
Swiss franc or selling them to prop up the currency, Jordan
He said there was no set exchange rate which would push the SNB
The SNB's decision to increase rates followed rising prices in
Switzerland and hawkish moves by other central banks that are
trying to keep a lid on resurgent inflation caused by spiralling
energy costs, tight labour markets and supply chain
The U.S. Federal Reserve lifted its benchmark rate by another 75
basis points on Wednesday, its third straight hike of that
magnitude, and Norway's central bank on Thursday hiked by half a
point. The Bank of England is expected to increase its rate by 50
basis points later on Thursday.
The SNB will use SNB bills and repo transactions to absorb
liquidity to ensure short-term money market rates remain close to
the now-positive policy rate, governing board member Andrea
Maechler said. It is also rolling out tiered remuneration of sight
deposits that banks hold at the SNB.
Karsten Junius, an economist at J.Safra Sarasin, said the SNB's
hike was accompanied by a more dovish message compared to other
'The language by the SNB together with an inflation forecast
that remains below 2% in 2024 make it quite unlikely that the SNB
is planning for another 75 bp rate hike in December again,' Junius
The SNB originally imposed negative rates in December 2014 and
lowered them again in January 2015 to minus 0.75%. Over the years
it said the world's lowest central bank rate was needed to curb the
rise of the safe-haven Swiss franc.
But the SNB's focus has switched to inflation, which hit 3.5% in
August, the highest in 29 years although lower than most other
Negative rates were unpopular among Swiss banks, who saw them as
a charge on their activities and also reduced lending margins.
The Swiss financial sector paid out 11.8 billion francs ($12.05
billion) in negative rates to the SNB during the past seven and a
There were fears that ultra-low rates would fuel dangerous asset
bubbles as investors bought up property to seek higher returns,
although this did not happen, economists said.
'The risks to the financial system didn't materialize and the
economy learned to live with the stronger franc,' said UBS
economist Alessandro Bee.
The Swiss Bankers Association said negative rates meant the
country's lenders had borne the brunt of the fight against the
'Sometimes you need tough medicine to get better, but the
banking sector will certainly be relieved that negative rates have
ended,' said Martin Hess, chief economist at the Swiss Bankers
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