How are central banks behaving now?

Switzerland out of negative rates after a long time

The Swiss central bank today raised its key interest rate by 0.75% to 0.5%. This is the most significant increase in the central bank’s history. Switzerland was the last European country with a negative base rate and today’s increase is only the second in Switzerland in the last 15 years.

In a press release, the Swiss central bank did not rule out continuing to raise interest rates. It noted that it is also prepared to intervene in the foreign exchange market if necessary.

Rates also rose in Norway

Norway’s central bank raised interest rates by 0.5% to 2.25%, signaling in a statement that its monetary tightening cycle may be coming to an end as it perceives the economy is responding to its anti-inflation moves. However, we may yet see another hike in November. The base rate in Norway is now the highest since 2011.

Norwegian central bankers said in a statement.

“The policy rate has been raised from zero to 2.25% over the past year and monetary policy is starting to have a tightening effect on the Norwegian economy. This may suggest a more gradual approach to policy rate setting ahead.”

Governor Ida Wolden Bache said.

“Inflation is markedly above our target of 2 percent, and there are prospects that inflation will remain high for longer than projected earlier.”

Stack of coins, portraits of famous leaders on banknotes

Other states are also raising interest rates

Interest rate hikes are now being seen in more countries everywhere. In addition to Switzerland and Norway, the central bank of the Philippines,Indonesia and England have also raised their interest rates.

The European Central Bank (ECB) and the US Federal Reserve (Fed) have also already raised their interest rates by 0.75%.

The exception is Japan

The exception is the Bank of Japan, which has long practiced an extremely easy monetary policy. It has left its interest rates unchanged at around 0%. According to its statement, it plans to continue this easy monetary policy in the future.

It is the low rates that contribute to the depreciation of the exchange rate, especially when other central banks are raising interest rates to fight high inflation. The Japanese government has therefore started to intervene in the foreign exchange markets to defend the currency, which has been steadily weakening and has lost about 30% of its value against the US dollar over the past year. This is the first time the Japanese authorities have intervened since 1998.

Read also: China has 50 years of coal reserves

A weak yen has been welcomed in the past as a boost to Japanese exports. However, it now poses a significant problem as it increases the cost of importing already expensive fuel and raw materials.