Inflation finally under control: Swiss National Bank slows rate hike

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Good news for Swiss people: As the Swiss National Bank SNB announced Thursday morning, the Central Bank is slowing rate hikes and raising the base interest rate by just 0.25 percentage points to 1.75 percent. Since last summer, the SNB has increased its main interest rate four times, 0.5 percentage points each time. The smaller rate hike shows that the Swiss National Bank has passed the hardest stage in tackling inflation.

Looking at the inflation trend, it is confirmed that the inflation in Switzerland fell from 2.6 percent to 2.2 percent from April to May. It was still 3.3 percent in January. The SNB’s inflation target is in the 0 to 2 percent range.

The majority of market players in the stock market expected interest rates to increase by 0.25 points. According to expectations, the SNB is likely to raise interest rates by 0.25 percentage points to 2 percent for the last time in September.

The weather is thinning for price hikes

The decline in inflation in Switzerland is due, among other things, to the sharp correction in energy prices. However, the recent development in core inflation is also pleasing. This variable is calculated without energy prices and food prices. Core inflation rose steadily from 1.8 percent to 2.4 percent last fall and fell to 1.9 percent in May. Price increases for goods and services have therefore slowed significantly.

Also, producer prices fell slightly in May: This means that the economy is now digesting the secondary effects of inflation, such as wage increases. This means that the basis for arguments for further price increases is getting thinner.

ECB decision could put Swiss franc under pressure

The SNB is catching up with the European Central Bank in raising interest rates, with the Central Bank raising the interest rate by 0.25 percentage points to 4 percent a week ago. Inflation in the euro area was still 6.1 percent in May. And while the SNB won’t decide on its next rate hike until September, the ECB will announce a possible next step on July 27. The expected increase should put downward pressure on the Swiss franc – which will increase inflationary pressures in Switzerland.

The US Federal Reserve (Fed), on the other hand, announced that it was going to increase interest rates a week ago, leaving the key interest rate in the range of 5.00-5.25 percent. But the Fed tackled inflation much sooner and, unlike the ECB, can boast of far greater successes. For example, inflation in the US in May was only 4 percent.

Source :Blick