Swiss National Bank Keeps Key Interest Rate Unchanged at 1.75%

The Swiss National Bank (SNB) has decided to maintain its key interest rate at 1.75%, signaling its commitment to achieving price stability. Stay informed about the bank's future actions and interventions in the foreign exchange market.

Switzerland's central bank, the Swiss National Bank (SNB), has made the surprising decision to keep its key interest rate unchanged at 1.75%. The SNB conveyed that the previous rate hikes had effectively countered inflation, but cautioned that further increases might still be necessary in the future to ensure price stability over the medium term. The bank emphasized its commitment to monitoring inflation closely in the coming months and acknowledged its willingness to intervene in the foreign exchange market as needed to maintain appropriate monetary conditions.

This pause in monetary tightening comes after a sequence of five consecutive rate hikes over the past year, with market analysts anticipating another quarter-point hike in this round. It was expected that the SNB would strive to avoid creating too significant a gap between its interest rate and the rate set by the European Central Bank. However, given the stagnation of Swiss economic activity in the second quarter and the dip in inflation below the 2% mark since June (reaching 1.6% on an annual basis last month), it is not entirely surprising that the SNB opted to maintain the current rate.

In terms of inflation forecasts, the SNB has left its outlook unchanged at 2.2% for 2023 and 2024. However, it revised its projection for 2025, lowering it to 1.9% from the previous estimate of 2.1% made in June. Despite this adjustment, the bank asserts that the revised forecast still falls within the range of price stability at the end of the forecast horizon.

Looking ahead, the SNB anticipates that the Swiss economy will continue to experience sluggish growth for the remainder of this year. It maintains its prediction that GDP will expand by approximately 1%. Factors contributing to this subdued growth include weak demand from abroad, the erosion of purchasing power due to inflation, and more restricted financing conditions.

This decision by the SNB aligns with the recent stance of central banks worldwide. Just last night, the US Federal Reserve also decided to keep interest rates steady while hinting at a likely rate hike in 2023, with fewer cuts expected in 2024. The central banks of Norway and Sweden, on the other hand, raised their interest rates today and indicated the likelihood of future tightening. Meanwhile, the Bank of England halted its series of interest rate increases due to the slowdown of the British economy. However, it emphasized that a recent decline in inflation should not be taken for granted.

In conclusion, the Swiss National Bank's unexpected decision to maintain its key interest rate at 1.75% reflects its assessment of the current economic conditions. By countering inflation through previous rate hikes, the bank aims to ensure price stability over the medium term. However, it remains vigilant and suggests the possibility of future monetary tightening if necessary. The SNB's focus on closely monitoring inflation and its readiness to intervene in the foreign exchange market demonstrates its commitment to maintaining appropriate monetary conditions.