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Strong franc, weak stock exchanges: interest rate hike in Switzerland
Photo: Oliver Berg/ dpa
The Swiss National Bank (SNB) surprisingly increased interest rates after more than seven years.
The key interest rate and interest on sight deposits at the central bank would be increased from minus 0.75 percent to minus 0.25 percent from June 17, as announced by the SNB.
»The tighter monetary policy is intended to prevent inflation in Switzerland from spreading to goods and services«.
It cannot be ruled out that further interest rate hikes will be necessary in the foreseeable future in order to stabilize inflation in the medium term within the range of price stability, explained the currency watchdogs.
Inflation changes course
The pressure on the three-member SNB Governing Board to counter rising inflation in Switzerland and to change course after more than seven years of negative interest rates and monetary policy insistence had increased recently.
It is true that inflation is still moderate at 2.9 percent year-on-year in May compared to more than eight percent in the USA and the euro zone.
However, consumer prices have risen more than they have in almost 14 years.
The central bank is targeting inflation of between zero and two percent – this value has been exceeded for months.
The SNB is anticipating an inflation rate of 2.8 percent for 2022 as a whole, after 2.1 percent was estimated in March.
1.9 (previously: 0.9) percent are then expected in 2023.
Strong franc, weak stock exchanges
Following the monetary policy decision, the Swiss franc rose sharply.
One euro currently costs around 1.024 francs – before the surprising announcement it was still available for 1.038 francs.
On the other hand, the increase fueled new concerns about the already fragile growth on Europe's stock exchanges.
In the run-up, hardly any economist had expected that the SNB would join the ranks of the interest-raising central banks.
Accordingly, it was not only for the German stock index Dax that fell by 2.85 percent.
The MDax also fell by 3.09 percent - and the Swiss SMI fell to its lowest level since the end of 2020.
rai/dpa/AFP