The Swiss National Bank said the crisis surrounding Credit Suisse has been halted. It raised its benchmark rate by another 50 basis points.
To continue to counter high inflation, the Swiss National Bank raised its policy rate by 50 basis points, as expected, to 1.5 percent, and did not rule out further increases, the SNB announced Thursday.
Crisis Contained
In a candidate for understatement of the year, the SNB said «the past week has been marked by the events surrounding Credit Suisse.»
With the forced takeover of Credit Suisse by UBS, «the measures announced at the weekend by the federal government, Finma, and the SNB have put a halt to the crisis,» the SNB said.
It also said that it is «providing large amounts of liquidity assistance in Swiss francs and foreign currencies,» with loans backed by collateral and subject to interest. The statement on Credit Suisse was limited to those comments, although more might follow at a media briefing later this morning.
Selling Foreign Currency
To provide appropriate monetary conditions, the central bank said it «remains willing to be active in the foreign exchange market as necessary,» adding that for some quarters, the focus has been on selling foreign currency.
Inflation Forecast
The SNB also raised its inflation forecast for this year to 2.6 percent from its December projection of 2.4 percent. It expects inflation to moderate to two percent next year, which is slightly higher than the 1.8 percent it forecasted in December.
Inflation continued to rise since the beginning of the year and was at 3.4 percent in February on an annual basis, and is «still clearly above the range the SNB equates with price stability.»
The Swiss economy is expected to expand by one percent this year, but cautioned the forecast for Switzerland, as the global economy is subject to a high degree of uncertainty. The main short-term risks are an economic downturn abroad and the adverse effects of the turmoil on the global financial sector.
Risk of Overtightening
Overall, the SNB completely separated the fight against inflation from concerns about financial stability, said EFG senior economist Gianluigi Mandruzzato. He also seems some risk in today's move by the central bank.
«With financing conditions for the non-financial sector having already tightened because of the increased cost of funding of banks, itself a consequence of the turmoil in the financial sector, the risk is the SNB’s policy will be too aggressive and cause unnecessary damage to the economy,» he said.
More Aggressive than Fed
Today's decision follows that of the Federal Reserve which yesterday hiked its target rate by 25 basis points to a new range of 4.75 percent to five percent. It also addressed recent turmoil in the financial markets saying the «US banking system is sound and resilient.»
The Fed also hinted that the end of the tightening road is in sight as it dropped «ongoing increases» language from its statement in favor of »the committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time.»
Later today, the Bank of England is expected to raise its policy rate by 25 basis points. Last week, the European Central Bank maintained the pace of its rate hikes with another 50 basis point increase.
