Swiss central bank raises rates again, signals may need to do more

The Swiss National Bank (SNB) building is seen near the Limmat river in Zurich, Switzerland March 23, 2023. REUTERS/Denis Balibouse/File Photo

ZURICH  – The Swiss National Bank raised its policy interest rate by 25 basis points on Thursday as the central bank pressed ahead with its campaign to dampen stubborn inflation and left the door open for more tightening.

The SNB increased its policy rate and the rate it charges on sight deposits to 1.75 percent from the 1.5 percent level set in March, its fifth increase in a row since the bank started its hiking cycle last year.

The increase, in line with forecasts in a Reuters poll, meant Swiss interest rates were now at their highest level since April 2002.

The central bank said it was tightening monetary policy further to counter inflationary pressure, which has increased again over the medium term.

“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” it said in a statement.

The SNB said it also remained ready to intervene in currency markets to maintain price stability, which it defines as an inflation rate of 0-2 percent.

In recent months the SNB has been selling foreign currencies to boost the value of the Swiss franc, whose strength has reduced the effect of more expensive imports.

In the last 12 months the SNB has switched focus from tackling the high value of the Swiss franc to combating price rises which it has said run the risk of becoming entrenched and harder to shift.

Although modest by international standards, at 2.2 percent in May, Swiss inflation has remained above the SNB’s 0-2 percent target range since February 2022, with rent increases later this year also expected to add to price pressures.