SNB suddenly hikes interest rate, triggering Franc rally
In a surprise decision, the Swiss National Bank raised its key rate by 50 points to -0.25%, the first increase in the country in 15 years. The SNB commented on the decision that it does not rule out further rises.
The main reason cited was to fight inflation, which reached 2.9% y/y in May. Inflation around Switzerland (in the Euro-region) is more than double, but rates have not been raised there. Therefore, analysts and traders did not expect to see policy tightening in Switzerland today.
The hawkish surprise caused the USDCHF to fall more than 2% to 1.013, subsequently pulling back to 1.018.
It is fair to say that the SNB is acting pre-emptively by actively raising the rate now in order not to raise it longer and higher later. The Fed, the ECB and the BoJ are getting their share of criticism for not doing the same.
