Switzerland and Norway raise rates

The central banks of Switzerland and Norway both raised policy rates today (June 22).

The Swiss National Bank ordered its fifth consecutive increase, adding 25 basis points to the policy rate to bring it to 1.75%. The SNB board’s policy statement said further rate rises “cannot be ruled out”.

Switzerland’s headline inflation fell to 2.2% in May, down from 2.6% in April and 3.4% in February. The central bank expects further falls in the near term, but inflation to rebound and average 2.2% in 2024 and 2025.

“Without today’s policy rate increase, the inflation forecast would be even higher over the medium term,” the central bank said. The SNB has a target inflation range of 0% to 2%.

SNB governor Thomas Jordan said “ongoing second-round effects, higher electricity prices and rents, and more persistent inflationary pressure from abroad” were buoying inflation. The Swiss central bank started its tightening cycle last June, raising the policy rate from -0.75%.

Jordan added: “The ample liquidity assistance we provided to Credit Suisse in March does not influence our monetary policy stance.” The SNB offered Sfr50 billion ($54 billion) to the country’s second-largest bank in March, but Credit Suisse failed nevertheless, and was sold to UBS.

The SNB forecast modest GDP growth of 1% in 2023. “Unemployment will probably rise slightly, and the utilisation of production capacity is likely to decline somewhat,” it said.

Norway predicts further rises

Norges Bank raised its policy rate by 50bp to 3.75%, its eleventh increase since September 2021, totalling 375bp.

In its policy statement, the five-member monetary and financial stability committee said it expects to raise the rate another 50 basis points by autumn. However, it added, “the tightening effect of high inflation and higher interest rates on household consumption is uncertain”.

The committee, which includes the governor and two deputy governors, blamed wage pressures and a weak krone for a faster-than-projected rise in prices. In its monetary policy assessment, the central bank also mentioned its surveys were reporting higher inflation expectations.

“Long-term inflation expectations fell slightly over spring but are still higher than 2%,” it added. However, the assessment also noted the Norwegian economy has been decelerating and the labour market has become somewhat less tight.

Headline inflation was 6.7% year-on-year in May, up from 6.4% in April, although lower than its recent peak of 7.5% in October. Norges Bank has a 2% average inflation target.