Switzerland exited the era of negative interest rates on Thursday when its central bank joined others around the world in tightening monetary policy more aggressively to combat resurgent inflation.
The Swiss National Bank (SNB) raised its policy interest rate by 0.75 of a percentage point, ending the country's seven-and-a-half year experiment with negative rates which sparked opposition from its financial sector and fears of asset bubbles.
The increase to 0.5%, from minus 0.25%, followed a 50 basis point hike in June from minus 0.75%, the SNB's first rate hike in 15 years.
Swiss government bond yields fell after Thursday's move, reversing course following an initial spike, while the franc dropped broadly, falling against the dollar, euro and pound as markets had priced in a 100 basis point rate hike by the SNB.
"It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term," SNB Chairman Thomas Jordan told a news conference.
The SNB would also still use forex interventions, purchasing foreign currencies to rein in an "excessive appreciation" of the Swiss franc or selling them to prop up the currency, Jordan said.
The SNB's decision to increase rates followed rising prices in Switzerland and hawkish moves by other central banks that are trying to keep a lid on resurgent inflation caused by spiralling energy costs, tight labour markets and supply chain bottlenecks.
The U.S. Federal Reserve lifted its benchmark rate by another 75 basis points on Wednesday, its third straight hike of that magnitude, and Norway's central bank on Thursday hiked by half a point. The Bank of England is expected to increase its rate by 50 basis points later on Thursday. read more
The SNB will use SNB bills and repo transactions to absorb liquidity to ensure short-term money market rates remain close to the now-positive policy rate, governing board member Andrea Maechler said. It is also rolling out tiered remuneration of sight deposits that banks hold at the SNB.
Karsten Junius, an economist at J.Safra Sarasin, said the SNB's hike was accompanied by a more dovish message compared to other central banks.
