SNB Vice-Chairman Indicates Additional Rate Hikes May Be Necessary, According to Reuters

GENEVA (Reuters) – The Swiss National Bank (SNB) may need to further tighten its monetary policy, depending on future developments in inflation within the country, according to Vice-Chairman Martin Schlegel, in an interview with a Swiss newspaper.

Last month, the SNB opted to maintain its policy interest rate at 1.75%, citing a decline in inflation, which was recorded at 1.6% in August and remains within the central bank’s target range of 0-2%.

Schlegel indicated that “further tightening of monetary policy may be necessary,” contingent on inflation trends. However, most economists surveyed recently believe that the SNB has likely finished raising interest rates.

He also noted that economic growth is expected to be modest next year and that a slight increase in unemployment is anticipated.

The Swiss franc reached its highest value against the euro since 2015 last Friday, driven by investor risk aversion linked to the ongoing conflict in the Middle East and a general decline in the euro’s strength.

“Our country is seen as so stable that our currency tends to appreciate during times of crisis,” Schlegel remarked, but he acknowledged the adverse effects this can have, particularly on export companies navigating challenging economic conditions.

Schlegel mentioned that the central bank is learning from the government’s intervention to support a rescue package for Credit Suisse in March, an event that unsettled the Swiss banking sector and triggered a broader market panic.

“One lesson is certainly that Credit Suisse’s liquidity drained away much faster than regulators in Switzerland and abroad had anticipated,” he stated.

He added that the AT1 bonds, which were eliminated during UBS’s acquisition of Credit Suisse, should have faced losses sooner.

“Despite ongoing losses, Credit Suisse did not halt interest payments on these instruments,” Schlegel explained, highlighting that this oversight could have provided the bank with immediate financial relief.