GENEVA (AP) — The Swiss central bank on Thursday made its biggest ever increase in its key interest rate, after the U.S. Federal Reserve and other central banks around the world in aggressive moves to curb inflation.
The Swiss National Bank said it could not rule out further increases beyond the three-quarters of a percentage point rise “to ensure price stability in the medium term”. Its goal is to cool inflation, which was 3.5% in August.
The rate rose from minus 0.25% to 0.5%, ending several years of negative interest rates in Switzerland – a testament to the stable growth, low inflation environment, along with Switzerland’s appeal as a safe haven for assets.
Essentially, that negative interest rate environment meant that people who parked funds 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 neighbors: the countries of the European Union. Inflation in the 19 countries that use the euro reached a record 9.1% in August..
The recent appreciation of the Swiss franc against the euro, for example, has led many Swiss consumers to cross the border to neighboring countries such as France or Germany to buy gasoline and other consumer goods that are suddenly relatively cheaper there.
The Swiss bank’s move came a day after the Fed raised its key rate by three-quarters of a point for the third time in a row and hinted that more hikes were to come.
European Central Bank it was also increased by much earlier this month, and the Bank of England is under pressure to act aggressively at Thursday’s meeting.
Switzerland is not a member of the EU, but it does most of its economic activity with the gigantic bloc of 27 countries.
Swiss-EU relations have been strained in recent years over issues including more than 100 bilateral agreements the two sides are trying to renew and demands by some populist politicians in Switzerland to limit the number of EU citizens who can live and work in the country. This concept greatly disturbs Brussels, because one of the central principles of the EU is the free movement of people within the territories of its member states and with other partners in the so-called Schengen zone.