GENEVA (AP) — Following the Federal Reserve, the Swiss National Bank on Thursday hiked its key interest rate by the largest ever in its history. and other central banks around the world actively taking steps to curb inflation.
The SNB said it could not rule out a further rise of more than three-quarters of a percentage point to “ensure price stability in the medium term”. It aims to cool inflation, which hit 3.5% in August.
Interest rates rose from -0.25% to 0.5%, ending several years of negative interest rates in Switzerland – a testament to steady growth, a low inflation environment and Switzerland’s attractiveness as a safe haven for assets.
Essentially, this negative interest rate environment means that those who keep their assets in Switzerland pay for the privilege, a counterintuitive idea for many investors who might expect a return on their savings.
Some economists say Switzerland appears to be less vulnerable to inflationary pressures because the wealthy Alpine country has a relatively high cost of living compared to its main neighbor, the European Union. Inflation in 19 countries using euro hits record 9.1% in August.
For example, the recent surge in the value of the Swiss franc relative to the euro has led many Swiss consumers to cross the border into neighboring countries like France or Germany to buy gasoline and other consumer goods that are suddenly relatively cheap there.
The Swiss bank’s move comes a day after the Federal Reserve raised its key interest rate by three-quarters of a point for the third time in a row and signaled more hikes to come.
European Central Bank Having also raised rates so much earlier this month, the Bank of England is under pressure to act aggressively at its meeting on Thursday.
Switzerland is not a member of the European Union, but most of its economic activity is done by the sprawling bloc of 27 countries.
Relations between Switzerland and the EU have been strained in recent years by a series of issues, including more than 100 bilateral agreements that the two sides have struggled to renew and calls by some Swiss populist politicians to limit the number of EU citizens who can live and work in the country. The concept is very disturbing to Brussels, as one of the EU’s core principles is the free movement of people within the territory of its member states and with other partners in the so-called Schengen area.