SNB leaves key interest rate at 1.75 percent
Published: Thursday, Dec 14th 2023, 10:50
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The Swiss National Bank (SNB) is extending its interest rate pause. At the same time, it is stepping on the brakes in terms of communication. The central bank no longer sees any immediate reason to publicly consider further interest rate hikes.
The SNB is leaving the key interest rate at 1.75% for the second time in a row, as it announced on Thursday. This is because inflationary pressure has recently eased slightly. Most recently, inflation was lower than expected at 1.4 percent in November.
The SNB noted that higher electricity prices and rents as well as the increase in VAT are likely to push inflation up again somewhat in the coming months. Nevertheless, its inflation forecast for the years up to 2025 is back within the range of price stability (0-2%) for the first time in some time.
In the medium term, lower inflationary pressure from abroad and somewhat lower second-round effects have led to a downward revision of the inflation forecasts, the SNB explained.
No further tightening signaled
At the same time, the central bank no longer mentions the possibility of a further tightening of monetary policy in its communiqué. Instead, it will closely monitor the development of inflation and "adjust monetary policy if necessary" in order to ensure price stability in the medium term.
Because uncertainty remains high. "We currently consider the upside and downside risks for inflation to be roughly balanced," said SNB Chairman Thomas Jordan at the accompanying press conference.
In addition, the SNB is no longer focusing on the sale of foreign currencies. These are an instrument used by the SNB to combat inflation. Foreign currency sales tend to lead to a stronger franc - so less inflation is imported from abroad.
"This shows that monetary conditions are currently appropriate," emphasized Jordan. However, the SNB is still prepared to be active on the foreign exchange market if necessary.
Fed also extends interest rate pause
Prior to this, the SNB had raised the SNB policy rate in five successive steps from summer 2022 to the current level of 1.75%. At the time, it was the first turn of the interest rate screw in fifteen years.
The US Federal Reserve had also extended its interest rate pause the previous evening. The same is expected of the European Central Bank, which will announce its interest rate decision in the afternoon.
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