Switzerland has ended its era of negative interest rates, with its central bank joining others around the world in tightening monetary policy more aggressively in the face of rising inflation.
The Swiss National Bank (SNB) raised its policy interest rate to 0.5% from minus 0.25%, ending the country’s seven-and-a-half year experiment with negative rates which had faced fierce opposition from its financial sector.
The increase followed a 50 basis point hike in June which was the SNB’s first rate hike in 15 years.
Swiss government bond yields fell following the decision to further increase rates, reversing course after an initial spike, while the franc dropped broadly, falling against the dollar, euro and pound as markets had priced in a 100 basis point rate hike by the SNB.
The central bank did not rule out the possibility of further rate rises.
“It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term,” SNB Chairman Thomas Jordan told a news conference.
Jordan did not provide any details of the timing or size of any future hikes.
The SNB would also still use forex interventions, purchasing foreign currencies to rein in an “excessive appreciation” of the Swiss franc or selling them to prop up the currency, Jordan said.
He said there was no set exchange rate which would push the SNB into action.