On Thursday, the Swiss National Bank hiked its policy interest rate for the first time in 15 years, following other central banks in tightening monetary policy to combat rising inflation and sending the safe-haven franc substantially higher.
The central bank raised its policy rate from -0.75 percent to -0.25 percent, the highest level since 2015. The rise was the SNB‘s first since September 2007.
“We see at the moment that inflation has increased in Switzerland — we have close to 3% — and we also observed that we have a certain risk of second-round effects,” SNB Chairman Thomas Jordan told CNBC‘s Julianna Tatelbaum on Thursday.
“We came to a conclusion that it is now better to increase interest rates by 50 basis points and not by 25 points in order to make an initial first step, in order to really also signal that we are fighting inflation so that it will also, over the medium-term, be in the range of price stability.”
The action follows the Federal Reserve’s 0.75 percent rate hike on Wednesday, while the European Central Bank suggested last week that it will boost rates in July to fight the eurozone’s 8.1 percent inflation rate.
“The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland. It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilize inflation in the range consistent with price stability over the medium term,” it said in a statement.
“To ensure appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary.”
The strength of the safe-haven franc has reduced the effect of inflation in Switzerland by lowering rising prices for fuel and food imports.
Nonetheless, the SNB boosted its 2022 inflation projection to 2.8 percent from 2.1 percent in March. It also forecasts 1.9 percent and 1.6 percent inflation in 2023 and 2024, respectively, up from 0.9 percent in both years previously.
The SNB continues to forecast that the Swiss economy will grow by roughly 2.5 percent in 2022.
Information from CNBC was used in this report