Swiss National Bank (SNB) hikes rates despite Credit Suisse demise

The Swiss National Bank (SNB) continued with its tightening process even as the country faces its biggest financial crisis in years. The bank followed the footsteps of the European Central Bank (ECB), by hiking interest rates by 0.50%.

In a statement, the SNB governor, Thomas Jordan, said that the interest rate hike was necessary since inflation remains stubbornly high. Data published this month showed that the headline consumer inflation rose to 3.4%, the highest level in more than a decade. 

The SNB expects that inflation will start to normalize in the coming months. It expects that the consumer price index (CPI) will average 2.6% in 2023 and then drop to 2.0% in 2024. At the same time, the bank warned that the Swiss economic growth will not be as strong as expected. The statement added:

“The subdued demand from abroad and the loss of purchasing power due to inflation are having a dampening effect. Overall, GDP is likely to increase by around 1% this year. Unemployment should remain at a low level, and the utilisation of production capacity is likely to decline somewhat.”

The interest rate decision by the SNB was important because it came at a time when Switzerland is facing its toughest economic challenge. During the weekend, the SNB and the financial regulator forced UBS to acquire Credit Suisse in a $3.3 billion deal. 

Credit Suisse, a bank that has been around for more than a century, was the second-biggest bank in the country. A part of its collapse led to losses worth billions for national and international investors. As such, there are concerns that the myth of Switzerland as a safe haven could be ending,.

The USD/CHF price plunged to the lowest point since March 15 after the SNB decision. After moving to parity, the EUR/CHF exchange rate drifted downwards while the GBP/CHF dropped to the lowest point since March 22.