Swiss Franc Falls Hard As SNB Raises Rates

09/22/2022

1 minute read

2022.09.22 09:58

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The Swiss franc is sharply lower today, after the Swiss National Bank raised rates by 0.75%. In the European session, is trading at 0.9834, up an impressive 1.79% on the day.

SNB Sends Rates Into Positive Territory

There were no surprises from the , which delivered a sharp 0.75% rate hike today, bringing the benchmark rate to 0.25%. This follows a 0.75% increase in June. Prior to these moves, the SNB had maintained its benchmark rate at -0.75% since 2015. Switzerland had held the distinction of being the only European country with negative rates, but rising inflation has forced the SNB to raise rates above zero.

Swiss hit 3.5% in August, a dream figure for other central banks, many of which are grappling with inflation close to double digits. Still, this reading was the highest in 30 years, and the SNB felt compelled to respond forcefully in order to keep inflation at bay. The Bank’s policy statement noted the rise in inflation and that Switzerland’s was lower than expected. The Swiss franc showed limited movement after the Fed rate hike on Wednesday but has plunged today after the SNB’s dramatic move.

Fed Delivers 0.75% Hike

The Federal Reserve raised by 0.75% on Wednesday for a third straight month, bringing the benchmark rate to 3.25%. This was largely expected, although there was a slight possibility that the Fed might raise rates by a full point. The Fed’s decision was a “hawkish 0.75% hike”, as the Fed sent a clear message that it will remain aggressive in order to stamp out , even at the cost of a recession. Fed Chair Powell left the door wide open for yet another 0.75% increase in November, and unless inflation shows a dramatic drop, December is likely to bring a hike of 0.50% or 0.75%. With the benchmark rate now in restrictive territory, above the 2.50% neutral rate, the Fed will have to exercise great care with future rate increases.