Interest rates in Switzerland go up again - what is happening to the franc exchange rate?

Swiss National Bank (SNB) decided to further tighten monetary policy, raising the SNB rate to 1,75%.

The purpose of this decision is to counter rising inflationary pressures, which have increased again in the medium term. The SNB stresses that further policy rate increases may be necessary to ensure price stability in the longer term. The bank also remains ready to intervene in the foreign exchange market by buying foreign currencies to maintain appropriate monetary conditions.

Reasons for the drop in inflation

Falling inflation in recent months was mainly due to lower prices of imported goods, especially oil i gas. Despite today's increase in the SNB policy rate, the new inflation forecast points to a moderate increase in average annual inflation at 2,2% in 2023 and 2024 and 2,1% in 2025. However, without the interest rate hike, this forecast would be even higher.

Conclusions from the statement of the Bank of Switzerland

In the first quarter of 2023, economic growth in developed countries was moderate and inflation remains high. Despite this, forecasts for global economic growth in the coming quarters are restrained and inflation is likely to remain high. However, in the medium term, inflation is expected to return to more moderate levels thanks to tighter monetary policy and the economic slowdown.

In the case of Switzerland, GDP growth in the first quarter of 2023 was solid, but moderate growth is expected for the rest of the year. Weakening demand from abroad, loss of purchasing power due to inflation and tighter financial conditions weigh on the growth outlook. There is also a risk of a more severe economic slowdown abroad.

How did the Swiss franc exchange rate react?

After the decision of the Swiss Bank, the zloty strengthened against the franc, and the franc fell to PLN 4,50. This marks the lowest exchange rate in a year (June 2022). Since the September peak, the CHF exchange rate has fallen by 62 groszy, i.e. over 12%. Further points of interest for the course may be in the region of PLN 4,43. The weakening of the Swiss currency after the decision of the SNB, at least in the short term, also seems to be visible on the broad and global currency market.