Europe's Central Banks Raise Interest Rates
Central banks across Europe raised interest rates on Thursday, June 16, 2022, some by shocking markets, and hinted at even higher borrowing costs to come in order to tame soaring inflation that is eroding savings and squeezing corporate profits, according to Reuters' John Revill and Andy Bruce.
Photo Insert: The Swiss National Bank and the National Bank of Hungary both surprised markets with large rate hikes just hours after their US counterpart.
Inflation has spread to everything from food to services, with double-digit readings in some parts of the continent, initially fueled by soaring oil prices in the aftermath of Russia's invasion of Ukraine. Such levels have not been seen in some areas since the aftermath of the 1970s oil crisis.
The Swiss National Bank and the National Bank of Hungary both surprised markets with large rate hikes just hours after their US counterpart, the Federal Reserve, raised rates by the most in nearly three decades. Meanwhile, the Bank of England raised borrowing costs by the quarter-point the market had predicted.
The moves come just one day after the European Central Bank (ECB) agreed in an emergency meeting to keep borrowing costs in the bloc's south under control, allowing it to proceed with rate hikes in both July and September.
"We are in a new era for central banks, where lowering inflation is their only objective, even at the expense of financial stability and growth," Mazars Wealth Management Chief Economist George Lagarias said.
The biggest moves of the day occurred in Switzerland, where the SNB raised its policy rate to -0.25 percent from -0.75 percent, a change so significant that no economist polled by Reuters predicted it. The first SNB hike since 2007 is unlikely to be the last, and the bank could exit negative territory this year, according to some economists.
"The new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future,” SNB Chairman Thomas Jordan said at a news conference.
The Swiss franc gained nearly 1.8 percent against the euro as a result of the decision and was on track for its biggest daily gain since January 2015, when the SNB decoupled the franc from its euro peg.