Swiss central bank hikes rate despite banking turmoil

ZURICH (AFP): The Swiss central bank announced a hefty interest-rate hike to tackle inflation despite turmoil in the banking sector on Thursday, declaring that authorities halted the crisis at Credit Suisse.

The Swiss National Bank said interest rates would rise by 50 basis points to 1.5 percent after a turbulent week, which saw the stricken Credit Suisse bank taken over by its bigger domestic rival UBS.

The central bank, the Swiss government and the country’s FINMA financial regulators orchestrated the shotgun wedding in emergency talks on Sunday.

“The Swiss National Bank is tightening its monetary policy further and is raising the SNB policy rate by 0.5 percentage points to 1.5 percent,” the central bank said in a statement.

“In doing so, it is countering the renewed increase in inflationary pressure. 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 rate change will apply from Friday, it said.

“The past week has been marked by the events surrounding Credit Suisse. The measures announced at the weekend by the federal government, FINMA and the SNB have put a halt to the crisis,” the SNB said.

The central bank in Zurich said inflation had risen again since the beginning of the year and stood at 3.4 percent in February.

“It is therefore still clearly above the range the SNB equates with price stability,” it said. The bank said the latest rise in inflation was principally due to higher prices for electricity, tourism services and food. “The new forecast puts average annual inflation at 2.6 percent for 2023,” it said.

The central bank also said Swiss GDP stagnated in the fourth quarter of 2022. It said the services sector lost momentum, and value-added in manufacturing declined slightly again.

“For 2022 as a whole, GDP grew by 2.1 percent. The labour market remained robust, and overall production capacity has been well utilised,” it said.

“Despite the slight upturn in economic activity in recent months, growth is likely to remain modest for the rest of the year.” “The subdued demand from abroad and the loss of purchasing power due to inflation are having a dampening effect. Overall, GDP is likely to increase by around one percent this year.”