SNB hikes rates by 50 basis points

The Swiss National Bank lifted its key policy rate on Thursday by 50 basis points to 1.00%, in line with expectations.

This marked the third rate hike this year. The SNB said it was aiming to tackle "increased inflationary pressure and a further spread of inflation". Inflation in Switzerland stood at 3% in November, which is well below the 10.7% rate of inflation seen in the UK and 10% in the eurozone.

The Swiss central bank also warned that further rate hikes could not be ruled out "to ensure price stability over the medium term".

It added: "To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary."

The SNB said it expects an inflation rate of 2.9% in 2022, 2.4% next year and 1.8% in 2024.

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said an increase was a foregone conclusion given that inflation remained above the Bank’s ‘below 2%’ target since its last meeting.

"But, as also widely expected, given the fall in inflation since the SNB’s last meeting, it pivoted to a smaller rate hike after September’s 75bp increase. Still the statement strikes an equally hawkish tone to that in September which, along with the increases to the Bank’s medium-term inflation forecasts, means we now think its hiking cycle is not yet done. We have added one more hike into our profile, in March, by 25 basis points."

On Wednesday, the US Federal Reserve also hiked rates by 50 basis points, as expected. Although this marked a slowdown in hikes, with the Fed having lifted rates by 75 basis points at each of its last four policy meetings, the central bank struck a hawkish note and adjusted up its expectations for rate rises next year.

Chair Jerome Powell said: "Over the course of the year, we have taken forceful actions to tighten the stance of monetary policy.

"We have covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do."

The Bank of England and the European Central Bank are expected to raise rates by 50 basis points when they make their latest policy announcements later in the day.