The Swiss National Bank raises its benchmark rate by 25 basis points to 1.75 percent, slowing the pace from March when it took a more aggressive stance to combat inflation.
Switzerland's central bank took a more measured approach in raising its key interest rate than it did in March, increasing its policy rate by 25 basis points to 1.75 percent effective tomorrow, it said in a statement. It also lowered its inflation forecast for this year.
It did so to counter inflationary pressure that «increased again over the medium term» and didn't rule out further hikes.
Economists were unanimous in saying the SNB would raise rates, but were split over the magnitude of the hike and when it would pause. At its meeting in March, it raised its benchmark rate by 50 basis points to 1.5 percent to counter renewed inflationary pressure.
Consumer Prices Moderate
Swiss consumer prices were 2.2 percent higher in May than they were a year ago, with prices excluding seasonal items, food, and fuel rising a more modest 1.9 percent. While that is lower than in other major economies, the SNB is taking no chances.
It said that inflation declined significantly in recent months, above all attributable to lower inflation for imported goods, particularly for oil products and natural gas.
«The marked decline in inflation in recent months is very welcome. This is also the result of our monetary policy, which is now significantly more restrictive than one year ago,» said SNB President Thomas Jordan following the decision. He went on to say that the situation with Credit Suisse wasn't taken into account.
It is important to note «the ample liquidity assistance we provided to Credit Suisse in March does not influence our monetary policy stance,» Jordan said in remarks prepared for delivery.
Slower Inflation Forecast
In its March monetary policy assessment, the SNB forecast annual inflation for this year at 2.6 percent, which it lowered to 2.2 percent in the current assessment, perhaps explaining the more modest rate hike.
For the coming two years, it expects higher inflation than it did in March when it expected inflation to moderate to 2.0 percent for both years. It now sees it at 2.2 percent next year and 2.1 percent in 2025. The reasons are the ongoing second-round effects of higher electricity prices and rents and more persistent inflationary pressure from abroad, the SNB said.
Foreign Exchange Markets
A strong Swiss franc is a tool the SNB has to combat inflation which gives it flexibility on its interest rate. It has been selling foreign currency for several quarters and in the current environment the «focus is on selling foreign currency.»
In the US, the Fed paused its string of rate hikes, keeping its policy rate in a range of 5 to 5.25 percent. Later today, the Bank of England is expected to raise its policy rate by at least 25 basis points to 4.75 percent, but with inflation running hotter than in the US and Eurozone, a more aggressive hike is possible.
