Enter multiple symbols separated by commas

SNB Raises Interest Rates, Increases Remain Likely

The Swiss National Bank raised interest rates by 25 basis points for the seventh quarter running on Thursday, and said more increases were likely if the economy remained strong.

Movements in the Swiss franc, which had contributed to a slight deterioration in inflation prospects, were also key to future rate decisions, the bank said in a statement.

The SNB increased the target band for the three-month Swiss franc LIBOR rate to 2-3%, aiming for the mid-point of 2.5%.

"Should economic momentum remain unchanged or should movements in the Swiss franc result in a further relaxation in monetary conditions, further increases in the interest rate are likely in the months ahead," the SNB said.

The SNB raised its inflation forecast, seeing the annual rate averaging 0.8% in 2007, 1.5% in 2008 and 1.7% by 2009. In March, it had forecast inflation of 0.5% this year, and 1.4% next year, rising to 1.6% in 2009.

The Swiss franc fell after the decision, which had been widely expected, trading at 1.6568 per euro. This took it closer to the recent 8-1/2 year low of 1.6614 in mid-May as investors use the interest rate differential with the euro zone for carry trades.

The SNB had left little doubt that interest rates were to rise despite current inflation of only 0.5% -- well below its threshold of 2% -- as above-potential economic growth and the weak franc threatened to push up consumer prices.

All 50 economists polled by Reuters had expected the SNB to stick to its series of 25 basis points rate increases at each quarterly policy meeting, which it resumed in December 2005, and most analysts see another step in September.

Markets had priced in further increases in December and March next year as the improved economic outlook provided the SNB with the leeway to raise rates despite low inflation rates.

The SNB raised its economic growth forecast to almost 2.5% for 2007 from "around 2%" so far, in line with economists' expectations after surprisingly brisk growth in the first quarter. Last year growth reached a 6-year peak of 2.7% reached in 2006.

Contact U.S. News


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

U.S. Video

  • Hero miles for military members: Real estate magnate's plea

    Chairman of the Fisher House Foundation, Ken Fisher, discusses the Hero Miles program with CNBC's Dina Gusovsky. During Military Appreciation Month, Fisher is asking every traveler to donate 1,000 of their miles to replenish the Hero Miles programs that is in danger of running out.

  • Cramer shuts down this market's haters

    "Mad Money" host Jim Cramer on why this market can't stop, won't stop.

  • From the battlefield to the boardroom

    Your Grateful Nation is dedicated to helping Special Forces veterans enter the corporate world and Knot Standard provides complimentary suits to vets. Mad Money's Jim Cramer spoke with Rob Clapper, Your Grateful executive director; John Ballay, Knot Standard co-founder and president; Tej Gill, retired U.S. Navy Seal; and Darren McB, active duty U.S. Navy Seal.