Swiss central bank raises rates again, signals may need to do more

The Swiss National Bank raised its policy interest rate by 25 basis points on Thursday as the central bank pressed ahead with its campaign to dampen stubborn inflation and left the door open for more tightening. The increase, in line with forecasts in a Reuters poll, meant Swiss interest rates were now at their highest level since April 2002. Chairman Thomas Jordan pointed to rising inflationary pressures and the danger of price increases becoming entrenched. Although inflation has declined compared with a year earlier, there was still more work to be done, Jordan told reporters. “The marked decline in recent months is very welcome,” Jordan said. “This is also the result of our monetary policy which is now significantly more restrictive than one year ago. “Nevertheless the underlying inflationary pressure has risen further,” He added. “We are therefore observing persisting second-round effects in many domestic goods and services.” As a result, Jordan said he could not rule out further increases. On Thursday the SNB increased its policy rate and the rate it charges on sight deposits to 1.75% from the 1.5% level set in March. The increase, in line with forecasts in a Reuters poll, meant Swiss interest rates were now at their highest level since October 2008. Jordan acknowledged that higher interest rates were leading to higher rents, with the knock-on effect of adding to inflation. Still, he said this would not deter the SNB from hiking again. “Without a more restrictive monetary policy, there would be a danger of inflation becoming entrenched and much stronger rate increases would be needed in the future.”