GENEVA (AP) — Switzerland’s central bank on Thursday raised its key interest rate in the biggest hike since the U.S. Federal Reserve. And other central banks around the world are on the offensive to control inflation.
The Swiss National Bank said it could not rule out further hikes beyond three-quarters of a percentage point “to ensure price stability in the medium term”. It aims to calm inflation, coming in at 3.5% in August.
Rates rose from minus 0.25% to 0.5%, ending several years of negative interest rates in Switzerland — evidence of stable growth, a low-inflation environment, combined with Switzerland’s appeal as a safe haven for assets.
In short, that negative interest rate environment meant that people who parked property in Switzerland paid for the privilege, a counterintuitive idea for many investors who might expect a return on their savings.
Some economists said Switzerland appeared less vulnerable to inflationary pressures because the cost of living in the wealthy Alpine country is relatively high compared to its main neighbours: the countries of the European Union. Inflation in the 19 countries that use the euro currency hit a record 9.1% in August.
The recent rise in the value of the Swiss franc against the euro, for example, has forced many Swiss consumers to cross the border to buy gasoline and other consumer goods in neighboring countries such as France or Germany, which are suddenly relatively less expensive there.
The Swiss bank’s move comes a day after the Fed raised its key rate by three-quarters of a point for the third straight time and hinted at further hikes.
European Central Bank Also raised by that earlier this month, and the Bank of England is under pressure to move aggressively at its meeting on Thursday.
Switzerland is not a member of the European Union, but much of its economic activity is done with the vast 27-nation bloc.
Swiss-EU relations have been strained in recent years by problems with more than 100 bilateral agreements that both sides have struggled to renew and some populist politicians in Switzerland demanding to limit the number of EU citizens who can live and work in the country. The idea greatly unsettles Brussels, as one of the EU’s central principles is the free movement of people between the territories of its member states and with other partners in the so-called Schengen area.
