The Swiss National Bank is raising interest rates as inflationary pressures hit hard

Swiss National Bank (SNB), Swiss National Bank.

IN THE CIRCLE OF COFFRINI | AFP | Getty Images

The Swiss National Bank raised its key interest rate on Thursday 0.5%, ending the era of negative interest rates in Europe.

The 75 basis point increase follows a hike to -0.25% on June 16, the first rate hike in 15 years. Before that, the Swiss National Bank had kept interest rates stable at -0.75% since 2015.

It comes after Swiss inflation hit 3.5% last month, the highest rate in three decades.

The bank said the rate hike “will respond to the recovery of inflationary pressures and the spread of inflation to goods and services that have so far been less affected”.

He added that a further increase in the interest rate “cannot be ruled out”.

The hike is in line with economists’ expectations, according to a Reuters poll.

The Swiss franc weakened dramatically against the dollar and euro after the rate hike. At 9:15 a.m. London time, the dollar was 1.24% higher against the Swiss currency and the euro was 1.6% higher.

Earlier this week, the Swiss franc hit its strongest level against the euro since January 2015 as economists began to speculate on the prospect of a 75 basis point hike.

Switzerland was the last country in Europe to have a negative interest rate as the region’s central banks have aggressively raised interest rates to deal with a spike in inflation.

Japan is now the last major economy with a central bank in negative territory after the Bank of Japan decided to keep interest rates at -0.1% on Thursday.

Meanwhile, Denmark ended its nearly decade-long streak of negative interest rates on September 8 when the central bank raised its benchmark interest rate by 0.75 percentage points to 0.65%.

Sweden’s central bank last raised its interest rate to 1.75% on September 20. The 100 basis point increase came after the Riksbank warned: “inflation is too high”.

The European Central Bank moved above zero when it raised interest rates on September 8 to combat soaring inflation.

According to Edward Scicluna, a member of the ECB Council, the ECB may continue to raise interest rates, but future increases will not be as drastic as the last 75 basis point increase on September 9.