Swiss National Bank raises key rate 50bps, says further hikes may be needed

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Swiss National Bank raises key rate 50bps, says further hikes may be needed
Credit: © Reuters.

By Geoffrey Smith -- The Swiss National Bank raised its key interest rate by another 50 basis points to 1.0% on Thursday and said further hikes may still be needed to bring inflation back down to target - but the franc still weakened as the central bank forecast a clear slowdown in the Swiss economy next year. 

Switzerland has one of the developed world's less acute problems: the SNB's new forecasts, published on Thursday, see it averaging only 2.9% this year, before falling to an average of 2.4% for 2023 and 1.8% in 2024. Even so, those forecasts are a touch higher than the Bank's previous ones and the SNB warned that "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 wording of the statement echoed other developed market central banks around the world, a day after the Federal Reserve warned that it expects to raise U.S. short-term rates above 5% next year. While the SNB doesn't expect a recession, it does expect economic growth to slow to a treacly 0.5% in 2023 from around 2% this year. 

The Fed's continued tightening of policy is forcing other central banks around the world to either follow suit or accept a weakening of their currencies, adding to inflationary pressure through the channel of commodity imports which are priced in dollars.

The SNB also said that it's prepared to keep selling its hoard of foreign reserves to stop the franc from weakening.

"To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary," the SNB said in its statement. The Bank has been a regular seller of foreign exchange in recent months.

Earlier on Thursday, the Norwegian central bank had also raised its key rate by 25 basis points to 2.75%, the highest since 2009.

The franc still struggled to make any headway despite the SNB's actions, on a day when the dollar was well bid in response to the Fed's latest projections for interest rates next year. By 04:45 ET (09:45 GMT), the dollar was up 0.6% at 0.9295 francs, while the franc was flat against the euro at 1.0137.

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