At the end of this week, the Swiss currency surprised the markets by showing a rise in price of more than 2% after the sudden increase in the key interest rate of the Swiss National Bank. At the same time, the USD/CHF pair was under strong bearish pressure, which it seeks to get rid of.
On Thursday, June 16, the SNB unexpectedly increased interest rates for the first time since 2007. The reason is excessive inflation, which can get out of control. This came as a surprise to the markets, as the SNB's actions were unexpected for most. As a result, the interest rate increased by 50 basis points (bp). Experts consider this measure a serious interference in the country's monetary policy. Many market participants were confident that the SNB would raise rates as one of the last central banks.
Analysts were perplexed by the scale of the increase in the key rate, since 50 bp does not play a special role in the regulation of monetary policy. According to experts, this step is difficult to consider as a significant increase in the cycle of rate hikes by the SNB.
After the decision of the Swiss central bank to raise the interest rate, Thomas Jordan, chairperson of the SNB, noted that the national currency is no longer highly overvalued due to the recent decline. At the moment, the SNB decided to act in line with the general trend and joined the global tightening of the monetary policy. According to representatives of the central bank, an additional rate hike may be required in the near future. The SNB made an unexpected decision simultaneously with the change in the inflation forecast, which now provides for 2.8% this year, 1.9% in 2023 and 1.6% in 2024. This is much higher than previous forecasts of 2.1% this year and 0.9% in 2023 and 2024.
According to representatives of the Swiss central bank, the tightening of monetary policy contributes to "preventing widespread inflation in Switzerland." According to Jordan, this measure will allow "to resist the increased inflationary pressure." The department is confident that without an increase in the discount rate, the inflation rate will rise sharply. "The central bank is ready to intervene to stop the excessive strengthening or weakening of the Swiss franc," Jordan stressed.
After increasing the interest rate by 50 bps, to -0.25%, the Swiss currency soared sharply. The USD/CHF pair rose by almost 3%, reaching 0.9850. Currently, the pair remains under strong bearish pressure, having lost 1.3% at the moment and being near 0.9817. The USD/CHF pair was trading at 0.9804 on Thursday afternoon, June 16, slightly "loosening the reins" of the current dynamics.
According to representatives of the SNB, a further increase in the key rate is acceptable in the foreseeable future. The implementation of such a scenario is possible if necessary, dictated by the current macroeconomic situation. The potential rate hike contributes to curbing inflation and stabilizing the monetary policy in the medium term, the agency believes.