The Swiss central bank has signalled that all is well in the Alpine country by raising interest rates even though just days ago it promised to fund troubled local lender Credit Suisse before helping force it to merge with domestic bank UBS.
The Swiss National Bank said Thursday that it will increase its benchmark policy rate by 50 basis points to 1.5%, a move widely expected by observers. “It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” the bank said in a statement.
Capital Economics wrote, “This morning’s 50bp interest rate hike by the SNB, to 1.50%, was in-line with expectations and shows that, like the ECB and Fed, Swiss policymakers have not been distracted from their inflation-fighting task by problems in the banking sector.”
SNB Chairman Thomas Jordan said that with Thursday’s rate hike, the Swiss lender is “countering the renewed increase in inflationary pressure.”
New bank forecasts have average Swiss annual inflation at 2.6% for 2023, and 2.0% for 2024 and 2025. “Without today’s policy rate increase, the inflation forecast would be even higher over the medium term,” Jordan said, adding that not raising rates could have hurt the bank’s credibility.
Swiss GDP is likely to increase by around 1% this year, Jordan said. “The forecast for Switzerland, as for the global economy, is subject to high uncertainty. In the short term, the main risks are an economic downturn abroad and adverse effects of the turmoil in the global financial sector.”
Additionally, the bank plans continue to be active on the foreign exchange market to “provide appropriate monetary conditions,” it noted. “For some quarters now, the focus has been on selling foreign currency.”
Jordan noted that the SNB remains willing to buy or sell currencies when needed.
EUR/CHF fell sharply following the rate hike announcement, but the pair rebounded as the trading session progressed.
Credit Suisse crisis stopped?
As far as Swiss rate-setters are concerned, the worst is over for Credit Suisse, as board members said repeatedly – and often defensively – in the press conference following the rate hike announcement.
“The past week has been marked by the events surrounding Credit Suisse,” the SNB said in a statement. “The measures announced at the weekend by the federal government, FINMA [the Swiss financial market supervisor] and the SNB have put a halt to the crisis.”
Prior to that, Credit Suisse had announced that it would borrow up to CHF 50 bn from the SNB.
Jordan said if the Swiss private sector lenders hadn’t merged on Sunday, Credit Suisse would have needed to declare bankruptcy.
The Swiss central bank noted that it is providing large amounts of liquidity assistance in Swiss francs and foreign currencies. “These loans are backed by collateral and subject to interest.”
SNB Vice-Chairman Martin Schlegel said for liquidity, both UBS and Credit Suisse “have unrestricted access to the SNB’s already long-established facilities.” Here they can obtain liquidity against high-quality securities under the liquidity-shortage financing facility (LSFF, and the SNB provides emergency liquidity assistance (ELA) with loans are covered by collateral in the form of Swiss mortgages transferred to the SNB or pledged securities.
Additionally, another CHF 200 bn in liquidity instruments were created for the banks on 16 March.
Global action
Along with central banks in the US, UK, Canada, Japan, and the Eurozone, the SNB has taken action to increase dollar liquidity via existing US dollar swaps. SNB board member Andrea Maechler said: “Since 20 March we have been conducting our US dollar repo auctions on a daily rather than a weekly basis, and will continue to do so until at least the end of April 2023.”
“Despite the recent turbulence in the banking sector, the SNB is undeterred,” wrote Thomas Gitzel, chief economist at VP Bank. “In view of the recent rise in the core inflation rate, the interest rate hike by 50 basis points was necessary.”
“It is by no means the case that everything is fine in Switzerland when it comes to inflation,” he noted. “The SNB also points this out: It cannot be ruled out that additional interest rate hikes will be necessary to ensure price stability in the medium term. This is a clear indication that further rate hikes will follow in the next few meetings.
“The SNB is a stability-oriented central bank and is careful to bring the key interest rate above the inflation rate. In the case of a positive real key interest rate, one can speak of a really restrictive central bank. We are therefore sticking to our assessment and expect two further interest rate hikes of 25 basis points each in the current year.”
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- Central bank cannot rule out further hikes
- Focus has been on selling foreign currency
- Coordinated measures “halted” Credit Suisse crisis
- Bank raises inflation forecasts
- Banking sector “turmoil” endangers domestic, global growth
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
23 March 2023 | 10:05 GMT
The Swiss central bank has signalled that all is well in the Alpine country by raising interest rates even though just days ago it promised to fund troubled local lender Credit Suisse before helping force it to merge with domestic bank UBS.
The Swiss National Bank said Thursday that it will increase its benchmark policy rate by 50 basis points to 1.5%, a move widely expected by observers. “It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” the bank said in a statement.
Capital Economics wrote, “This morning’s 50bp interest rate hike by the SNB, to 1.50%, was in-line with expectations and shows that, like the ECB and Fed, Swiss policymakers have not been distracted from their inflation-fighting task by problems in the banking sector.”
The Fed raised its benchmark rate 25bps on Wednesday, and the ECB increased rates a half point last week.
SNB Chairman Thomas Jordan said that with Thursday’s rate hike, the Swiss lender is “countering the renewed increase in inflationary pressure.”
New bank forecasts have average Swiss annual inflation at 2.6% for 2023, and 2.0% for 2024 and 2025. “Without today’s policy rate increase, the inflation forecast would be even higher over the medium term,” Jordan said, adding that not raising rates could have hurt the bank’s credibility.
Swiss GDP is likely to increase by around 1% this year, Jordan said. “The forecast for Switzerland, as for the global economy, is subject to high uncertainty. In the short term, the main risks are an economic downturn abroad and adverse effects of the turmoil in the global financial sector.”
Additionally, the bank plans continue to be active on the foreign exchange market to “provide appropriate monetary conditions,” it noted. “For some quarters now, the focus has been on selling foreign currency.”
Jordan noted that the SNB remains willing to buy or sell currencies when needed.
EUR/CHF fell sharply following the rate hike announcement, but the pair rebounded as the trading session progressed.
Credit Suisse crisis stopped?
As far as Swiss rate-setters are concerned, the worst is over for Credit Suisse, as board members said repeatedly – and often defensively – in the press conference following the rate hike announcement.
“The past week has been marked by the events surrounding Credit Suisse,” the SNB said in a statement. “The measures announced at the weekend by the federal government, FINMA [the Swiss financial market supervisor] and the SNB have put a halt to the crisis.”
Prior to that, Credit Suisse had announced that it would borrow up to CHF 50 bn from the SNB.
Jordan said if the Swiss private sector lenders hadn’t merged on Sunday, Credit Suisse would have needed to declare bankruptcy.
The Swiss central bank noted that it is providing large amounts of liquidity assistance in Swiss francs and foreign currencies. “These loans are backed by collateral and subject to interest.”
SNB Vice-Chairman Martin Schlegel said for liquidity, both UBS and Credit Suisse “have unrestricted access to the SNB’s already long-established facilities.” Here they can obtain liquidity against high-quality securities under the liquidity-shortage financing facility (LSFF, and the SNB provides emergency liquidity assistance (ELA) with loans are covered by collateral in the form of Swiss mortgages transferred to the SNB or pledged securities.
Additionally, another CHF 200 bn in liquidity instruments were created for the banks on 16 March.
Global action
Along with central banks in the US, UK, Canada, Japan, and the Eurozone, the SNB has taken action to increase dollar liquidity via existing US dollar swaps. SNB board member Andrea Maechler said: “Since 20 March we have been conducting our US dollar repo auctions on a daily rather than a weekly basis, and will continue to do so until at least the end of April 2023.”
“Despite the recent turbulence in the banking sector, the SNB is undeterred,” wrote Thomas Gitzel, chief economist at VP Bank. “In view of the recent rise in the core inflation rate, the interest rate hike by 50 basis points was necessary.”
“It is by no means the case that everything is fine in Switzerland when it comes to inflation,” he noted. “The SNB also points this out: It cannot be ruled out that additional interest rate hikes will be necessary to ensure price stability in the medium term. This is a clear indication that further rate hikes will follow in the next few meetings.
“The SNB is a stability-oriented central bank and is careful to bring the key interest rate above the inflation rate. In the case of a positive real key interest rate, one can speak of a really restrictive central bank. We are therefore sticking to our assessment and expect two further interest rate hikes of 25 basis points each in the current year.”