The Swiss central financial institution hikes rates of interest as inflationary pressures hit exhausting

Swiss National Bank (SNB), the central bank of Switzerland.

FABRIC COFFRINI | AFP | Getty Images

The Swiss National Bank opened its key interest rate on Thursday 0.5%, a shift that ends an era of negative interest rates in Europe.

The 75 basis point hike follows a hike to -0.25% on June 16, the first rate hike in 15 years. The Swiss central bank had previously kept interest rates constant at -0.75% since 2015.

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

The bank said the rate hike was to “counter the resurgence of inflationary pressures and the spread of inflation to goods and services, which have been less affected so far”.

It added that further rate hikes “cannot be ruled out”.

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

The Swiss franc weakened dramatically against the dollar and the euro following the rate hike. As of 9:15 am London time, the dollar was up 1.24% against the Swiss currency and the euro was up 1.6%.

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

Switzerland was the last remaining country in Europe with a negative interest rate as the region’s central banks aggressively hiked rates to counter rising 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 on hold at -0.1% on Thursday.

Denmark, on the other hand, ended its almost decade-long negative interest rate streak on September 8 when the central bank raised its key interest rate by 0.75 percentage points to 0.65%.

Most recently, the Swedish central bank increased its interest rate to 1.75% on September 20th. The 100 basis point hike came as the Riksbank warned “Inflation is too high”.

The European Central Bank hovered above zero as it hiked interest rates on September 8th to combat rising inflation.

The ECB could raise rates further, but future hikes will not be as sharp as the recent 75 basis point hike on September 9, according to ECB Governing Council member Edward Scicluna.