London (AFP)
The central banks of Switzerland, Norway and the United Kingdom announced yesterday that they will raise interest rates to curb inflation, despite the turmoil in the global banking sector, following the US Federal Reserve (the central bank) raised the cost of lending. The SNB, which was involved in the USB takeover of Credit Suisse, raised the key interest rate, as expected, by half a percentage point to 1.5%.
Norway’s central bank followed suit, announcing a quarter-percentage-point hike to 3 percent.
The Bank of England also raised interest rates for the 11th consecutive time, as policymakers seek to tackle high inflation despite turmoil in the banking sector. The Bank of England’s Monetary Policy Committee voted in a regular meeting to raise the key interest rate by 25 basis points to 4.25 per cent, the highest level since late 2008.
Central banks are still struggling to rein in inflation, with the US Federal Reserve announcing a 25bps hike in interest rates yesterday, one week following the European Central Bank announced a massive 50bps increase in borrowing costs in the Eurozone.
The need to curb inflation
After meetings of their monetary policy officials, the Swiss Central Bank announced in a statement that it was “addressing the new rise in inflationary pressures,” while the Bank of Norway stressed “the need for a higher key interest to curb inflation.” While the Federal Reserve raised interest rates, analysts said that the statement accompanying the decision indicated that the bank may soon suspend monetary tightening measures. And following a previous warning to the US Reserve that “additional increases … may be appropriate” to curb inflation, he said that “additional tightening measures may be appropriate.”
The Federal Reserve said that recent developments in the banking sector “are likely to weigh on economic activity, employment and inflation.” The SNB’s rate decision followed the latest hike in December. It comes days following Switzerland contributed at the end of last week to concluding the acquisition of USB Bank of its troubled rival, Credit Suisse.
End the banking crisis
The Swiss Central Bank said that the Swiss authorities “put an end to the crisis” at Credit Suisse, stressing that its measures maintained financial stability.
And bank president Thomas Jordan announced, at a press conference in Zurich, that any failure to solve the Credit Suisse crisis “would have caused a greater financial crisis, not only in Switzerland, but, most likely, globally.”
He added, “The focus should be on ensuring that we maintain financial stability in all circumstances.”
The acquisition of the bank came in the wake of the collapse of Silicon Valley Bank and Signature Bank in the US, which caused turmoil in global markets.
What contributed to the collapse of Silicon Valley was the Federal Reserve’s decision to raise interest rates, which were close to zero, to high rates. This prompted economists to talk recently regarding the possibility of central banks suspending measures to stop raising interest rates.
Global recession fears
But severe inflation remains a major problem and is widely seen as threatening a global recession this year.
At the beginning of the week, there was talk of how the Bank of England managed to decide once morest raising its main interest rate of 4.0%.
However, official data showed yesterday a sudden rise in annual inflation in the United Kingdom, amounting to 10.4 percent, which changed the course of that talk.
Richard Hunter, an analyst at Interactive Investments, said: “The Bank of England, which is also hampered by a combination of persistent inflation and banking sector turmoil, has already followed the decisions of the European Central Bank and the Federal Reserve, raising interest rates by 0.25 percent at 4.25 percent.”
This is the central bank’s eleventh consecutive increase since the end of 2021 when the interest rate was 0.1 percent, the lowest ever.
