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Switzerland set for another interest rate hike, central bank chief warns

After having raised its key interest rates three times in the past year the head of the Swiss National Bank has warned another hike is likely.

Published: 23 January 2023 11:39 CET

Switzerland set for another interest rate hike, central bank chief warns

Swiss National Bank President Thomas Jordan. Photo by Fabrice COFFRINI / AFP

Speaking at the World Economic Forum in Davos on Friday, the central bank (SNB) head Thomas Jordan said that more increases could be imminent.

The measure would be taken to tame inflation, which stood at 2.8 percent on average for most of 2022 and which the SNB wants to lower to 2.4 percent in 2023.

“The population doesn’t like inflation, so … the focus on price stability is absolutely essential,” he pointed out.

Though Jordan didn’t specify by how much the rates will go up this time, analysts believe interest will be raised by another 0.5 percent, bringing it to 1.5 percent.

The increase is not a surprise, since the SNB already said in September, when it raised the key interest rate by 0.75 percentage points, that further hikes in the policy rate “will be necessary to ensure price stability over the medium term.”

Is another rate hike good or bad for Swiss consumers?

It depends on what people intend want to do with their money.

Any big-ticket items that require credit — like property — will become more expensive.

If you already have a fixed-rate mortgage, then you are safe from rate increases for the term of your mortgage.

But if you are a new buyer or have variable-rate mortgages, prepare to dig deeper into your pockets as interest rates could reach up to 4 percent this year.

On the other hand, if you have a bank account, you can expect to see a higher yield on assets, though the actual increase depends on several factors, such as what bank you use and what kind of accounts you have there.

READ MORE: EXPLAINED: What the steep rise in Swiss interest rates could mean for you

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Is the UBS takeover of Credit Suisse good for the Swiss economy?

The historic takeover sent shockwaves through global financial markets, including, of course, Switzerland, which is no stranger to banking scandals, but where takeovers of such massive scale are extremely rare.

While Credit Suisse — which, until Sunday, was Switzerland’s second-largest bank — faced its demise after a turbulent week on the stock market that ended with a 50-billion-franc lifeline from the Swiss central bank, the Federal Council convened for hastily organised crisis talks during the weekend to figure out how to save the day — and the country’s economy.

After the UBS announced on Sunday its readiness to take over Credit Suisse, the government said it “welcomes this move as an important contribution to financial market stability.”

To ensure a smooth transition period, Swiss National Bank will release up to 100 billion francs “to reduce the burden on the Swiss economy,” federal authorities said.

They added that they are “taking this measure in order to protect financial stability and the Swiss economy.

READ MORE: Switzerland’s crisis-hit Credit Suisse bank faces crucial weekend

Why did the government approve the takeover?

Its primary goal, the Federal Council said, is to “minimise the risk” that Credit Suisse’s failure would unleash on Switzerland’s economy.

By approving the takeover and providing the interim financial help, the Federal Council “is reaffirming its readiness to take the necessary measures to protect the stability of the Swiss financial centre.”

If you are a Credit Suisse customer, what will happen to your accounts?

They too will be ‘taken over’ by UBS.

You will receive a letter from the bank informing you how and when this will happen, along with other details.

Your money will be transferred automatically after you sign the necessary documents.

However, if you prefer to transfer your assets to another bank, you are free to do so as well.

UBS will provide information on how to do this.

Will the money remain safe?

As The Local recently reported, Swiss banks are “very safe,” in international comparison, both in terms of capital and liquidity, according to Robert Reinecke, spokesperson for Swiss Banking Association (SBA).

“They have a very robust capital base even in stress scenarios,” he added.

Assets deposited in either Swiss banks or foreign financial institutions that operate a branch in Switzerland must be licensed, regulated, and supervised by the Swiss Financial Market Supervisory Authority FINMA.

As an additional safety measure, “Swiss law demands capital adequacy standards” to ensure solvency, according to SBA.

You can read more about how your money is protected in this article:

Reader question: Will Credit Suisse crisis impact my savings in Switzerland?

What reaction did the takeover elicit in Switzerland?

In terms of share prices Credit Suisse shares fell 63.7 percent below UBS takeover price on Monday whilst UBS shares fell 8.77 percent.

It depends on who you ask.

For the Swiss president Alain Berset, “this is the best solution not only for Switzerland, but for the financial stability on global scale as well.”

“Its fate is therefore not only decisive for Switzerland, for our companies, for private clients, for its own employees, but also for the stability of the entire financial system,” Berset said in unveiling the deal.

Finance Minister Karin Keller-Sutter said the bankruptcy of Credit Suisse could have caused “irreparable economic turmoil”.

“For this reason, Switzerland has to take responsibility beyond its own borders,” she said.

“The UBS takeover of Credit Suisse has laid the foundation for greater stability both in Switzerland and internationally.”

But for Axel Lehmann, chairman of Credit Suisse’s board of directors, the demise of the bank, which has been a huge part of Switzerland’s financial landscape since 1856, “is sad,” he said in an interview.

“It is sad not only for the bank and its employees, but also for Switzerland and the world,” he added.

UBS chairman Colm Kelleher said the merger boosted his bank’s position as a global wealth management leader with more than $5 trillion in total invested assets.

“It will also reinforce UBS’s position as the leading universal bank in Switzerland and further extend our position as the most important Swiss global bank,” Kelleher said

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