Swiss central bank implemented the largest rate increase ever on Thursday, imitating the harsh measures taken by the U.S. Federal Reserve and other central banks around the globe to combat inflation.
According to Thomas Jordan, head of the SNB governing board, the Swiss National Bank could not completely rule out the possibility that additional hikes above the rise of three-quarters of a percentage point “would be necessary to ensure price stability over the medium term.”
It intends to cut inflation, which was 3.5% in August, significantly lower than the record 9.1% in the 19 nearby member states of the European Union that use the euro.
The Swiss rate jumped from -0.25% to 0.5%, ending years of negative interest rates, which is evidence of the country’s attractiveness as a haven for assets and of the stable economy and low inflation environment.
For many investors who would have expected a return on their money, the negative interest rate environment essentially meant that anyone who stashed funds in Switzerland paid for the pleasure.
Because Switzerland’s cost of living is relatively high compared to its primary neighbors, the European Union member states, some economists have claimed that the wealthy Alpine nation appears to be less susceptible to inflationary pressures.
For instance, a recent rise in the Swiss franc’s value against the euro has led many Swiss customers to cross the border into nearby nations like France or Germany to purchase fuel and other consumer items that are now suddenly more affordable there.
Following the bank’s statement, the Swiss franc fell more than 1% against the euro, and economists speculate that some investors may have anticipated a higher increase.
The action was taken a day after the Fed raised its benchmark interest rate by three-quarters of a percent for the third time in a row and hinted that additional hikes would follow.
