SNB Surprises With Half-point Hike In Hawkish Turn
In a strange turn of events, SNB President Thomas Jordan said the bank is ready to buy Swiss francs if needed. (Photo: SNB)

- Key rates jump to -0.25% from global low of -0.75%

- Bank implements “tighter monetary policy”

- Further hikes “cannot be ruled out”

- CHF surges

- Swiss franc “no longer highly valued”

- Policymakers ready to buy, sell own currency

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

16 June 2022 | 10:00 GMT

 

In a surprise move, the Swiss National Bank raised interest rates for the first time in 15 years as inflation continues to concern monetary policymakers and government officials around the world.

 

The Swiss central bank hiked both its benchmark policy rate and its sight deposit rate by 50 basis points to -0.25% from a global low of -0.75%.

 

The decision followed Wednesday’s 75bp hike from the US Federal Reserve, with its Swiss counterpart signalling a willingness to implement more increases if needed.

 

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, tweeted: “It's hardly a coincidence that the Fed, ECB, SNB or RBA all came up with surprise moves in the past week. It started with the IMF meetings, and there's been an implicit coordination since then.”

 

The SNB has generally followed the lead of the European Central Bank when it comes to monetary policy as it attempted to avoid the appreciation of its currency, considered by many to be a safe haven. But this time Swiss officials got out ahead of central bankers in Frankfurt, who last week announced that a 25bp rate hike – the ECB’s first in 11 years – is set for next month.

 

Swiss rate-setters said consumer price growth is driving decision-making. “We are seeking to counter increased inflationary pressure,” SNB President Thomas Jordan said. “The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland.”

 

Inflation hit 2.9% last month in the Alpine country, and while it currently exceeds the SNB’s target of below 2%, Switzerland’s rate of price growth is significantly less than the 8.1% record reported in the neighbouring Eurozone, a currency area to which the economy is inextricably linked.

 

In its latest projections released Thursday (see graphic), the SNB raised its inflation forecasts for this year and the following two, with price growth expected to be 2.8% or higher over the next nine months before it drops to 1.9% in Q2 2023.

 

Just a start?

Jordan told journalists that the Swiss bank is ready to act again. “It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilise inflation in the range consistent with price stability over the medium term.”

 

Thursday’s widely unexpected move is a sign that the bank may be willing to quickly tighten monetary policy regardless of its meeting timetable, said David Oxley, senior European economist at Capital Economics. “Given its history of making unscheduled policy announcements, we think it more likely than not that the bank will raise interest rates again, to zero over even into positive territory, before the next scheduled meeting in September.”

 

The surprise hike jolted currency markets. The euro initially lost around two cents against the Swiss currency following the announcement. That may not be a bad thing, according to Jordan, who Thursday dropped the “highly valued” classification for the franc.

 

“Since the last monetary policy assessment, the development of the Swiss franc exchange rate has also contributed to the rise in inflation,” he said, noting that the currency has depreciated in trade-weighted terms despite the higher inflation abroad. “Thus the inflation imported from abroad into Switzerland has increased. Another consequence of this depreciation coupled with significantly higher inflation abroad is that the Swiss franc is no longer highly valued.”

 

Jordan said the bank is ready to either buy or sell the franc depending on the whether it requires support or depreciation.

 

SNB Governing Board Member Andrea Maechler noted that while the bank remains ready to intervene on currency market, interest rates will remain the lender’s main policy instrument.

 

The SNB’s next rate decision is set for 22 September.

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