The Swiss National Bank on Thursday raised its benchmark interest rate to 0.5%, a shift that brings an end to an era of negative rates in Europe. This move was widely expected by economists, who see it as a sign that the Swiss economy is strengthening.
The Swiss National Bank has raised interest rates by 75 basis points, following an increase to -0.25% on June 16. This is the first rate rise in 15 years, and the central bank has now held rates steady at -0.75% since 2015.
Inflation in Switzerland hit 3.5% last month, its highest rate in three decades. This comes after a period of relative stability in prices.
The bank said that by raising the policy rate, it is countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected.
The Reserve Bank of India (RBI) said on Wednesday that further policy rate increases “cannot be ruled out”. RBI Governor Shaktikanta Das said the central bank’s monetary policy committee (MPC) had voted unanimously to keep the repo rate unchanged at 4.00%.
This hike is in line with what economists have been expecting, according to a recent Reuters poll. This is good news for the economy and should help boost growth in the coming months.
The Swiss franc weakened significantly against the dollar and euro after the central bank raised interest rates. At 9:15 a.m. London time, the dollar was up 1.24% against the Swiss franc, while the euro was up 1.6%.
Earlier this week, the Swiss franc hit its strongest level against the euro since Jan. 2015, as economists started to speculate about the prospect of a 75 basis points increase. This has led many to believe that the Swiss franc may continue to appreciate in value against the euro in the coming months.
As inflation has been rising sharply in Europe, the central banks of the remaining countries in the region have been increasing rates aggressively. Switzerland was the last country to still have a negative policy rate, but this has now changed.
Japan is the last major economy with a central bank in negative territory, after the Bank of Japan decided to keep its interest rates on hold at -0.1% on Thursday. This means that other major economies have interest rates that are positive, while Japan's is still negative. This could have implications for the Japanese economy going forward.
Denmark's central bank raised its benchmark interest rate by 0.75 percentage points to 0.65% on September 8, ending the country's almost decade-long streak of negative rates.
Most recently, Sweden’s central bank increased its interest rate to 1.75% on Sept. 20. The 100 basis point hike came as the Riksbank warned that inflation was too high.
On September 8, the European Central Bank raised rates above zero in order to combat soaring inflation. This move is likely to have a positive impact on the economy, as it will help to keep prices stable.
According to ECB Governing Council member Edward Scicluna, the ECB could continue to increase rates, but future rises will not be as drastic as the most recent 75-basis-point hike on September 9.
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