Swiss National Bank hikes key interest rate in line with Fed

GENEVA (AP) — The Swiss National Bank raised its key interest rate Thursday, as other central banks in Europe are starting to follow the playbook of the U.S. Federal Reserve in a bid to tame inflation.

Switzerland’s central bank hiked its policy rate by half a percentage point, to 1%, the same pace that the Fed chose Wednesday and the Bank of England and European Central Bank followed a day later. Norway’s central bank did a smaller quarter-point hike Thursday.

The Swiss bank said that while inflation has eased in recent months, consumer prices still accelerated to 3% in November — above its target but much lower than what has been seen in the 19-country euro area, where inflation stood at a painful 10%. It was even higher in the U.K. at 10.7%, while it’s at 7.1% in the U.S.

In Switzerland, the half-point hike was a slowdown from the bank’s three-quarter-point increase in September, its biggest ever that ended several years of negative interest rates.

The bank says it can’t rule out further steps to make borrowing more expensive, pointing to slowing global economic growth and a world “subject to significant risks,” such as the energy crisis in Europe, the COVID-19 pandemic and lasting high inflation.

“In its baseline scenario for the global economy, the SNB expects this challenging situation to persist for now,” the bank said in a statement. “Global economic growth is likely to be weak in the coming quarters, and inflation will remain elevated for the time being.”

The bank lowered its inflation forecast for the end of this year and first three months of 2023 from its predictions in September, expecting the rate to stay at 3% before falling. But the forecast for inflation is “higher over the medium term” despite rate hikes. Its new predictions put average annual inflation at 2.9% this year, 2.4% next year and 1.8% in 2024.

It foresees economic growth of about 2% this year but said “weaker demand from abroad and the high energy prices are likely to curb economic activity markedly in the coming year.” With that, the bank expects growth of about 0.5% next year.

“The forecast for Switzerland, as for the global economy, is subject to high uncertainty,” the bank said. “A stronger economic downturn abroad or a pronounced energy shortage in Switzerland would, in particular, have a negative effect.”

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