After Fed and European central banks hike their rates

LONDON (AFP): Switzerland and Norway hiked interest rates on Thursday to tackle inflation despite banking-sector turmoil, with the UK’s central bank next in line after the US Federal Reserve also lifted borrowing costs.

The Swiss National Bank, which helped oversee the recent UBS buyout of troubled Credit Suisse, lifted its key rate as expected by a hefty 50 basis points to 1.5 percent.
Norway’s central bank followed suit moments later, hiking its rate by a more modest 25 basis points to 3.0 percent after its policymakers concluded that “a higher policy rate is needed to curb inflation”.

The Bank of England is forecast to join them in hiking rates in the face of stubbornly-high inflation — and as markets remain jittery over turmoil in the global banking sector.

“The SNB is tightening its monetary policy further… In doing so, it is countering the renewed increase in inflationary pressure,” the Swiss institution said in a statement.
The Fed decided Wednesday to push up interest rates by a quarter of a percentage point, or 25 basis points.

While the Fed hiked its rate despite banking turmoil, analysts say its accompanying statement signalled it may soon pause its monetary tightening.

The Fed statement replaced a previous warning that “ongoing increases… will be appropriate” to tame inflation with a conditional one saying “some additional policy firming may be appropriate”.

Recent banking sector developments “are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation,” the Fed added.

The Swiss rate call, which matching the last increase in December, comes just a few days after the SNB joined other major central banks in boosting liquidity in the wake of the latest banking crisis.

Switzerland at the weekend had brokered the takeover of crisis-hit Credit Suisse by its Swiss rival UBS.

The buyout followed the collapse this month of Silicon Valley Bank and Signature Bank in the United States, which sent shockwaves across global markets.

A catalyst for SVB’s demise was the Fed’s shift from near-zero interest rates to higher borrowing costs aimed at taming decades-high inflation.

This is the reason economists have in recent days spoken about the possibility of central banks pressing the pause button on interest-rate hikes.

But hot inflation remains a major problem and is widely seen as threatening a global recession this year.

At the start of the week, there was much talk about how the Bank of England could decide against lifting its key rate, which stands at 4.0 percent.

However, official data Wednesday showing a surprise jump in annual UK inflation to 10.4 percent quickly changed that conversation.

Ahead of the release, “the Bank of England’s interest rate decision was a coin flip between a 25-basis points hike or no change in monetary policy”, noted Fawad Razaqzada, market analyst at City Index.

But following the inflation number, the BoE is “now highly likely to raise rates by 25 basis points”, he added.

An increase would be the central bank’s eleventh in a row since the end of 2021 when its rate stood at a record-low 0.1 percent.