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The Swiss central bank is raising interest rates due to strong inflationary pressures

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Swiss National Bank (SNB), the central bank of Switzerland.

CAFRINI FACTORY | AFP | Getty Images

The Swiss National Bank on Thursday raised the base interest rate to 0.5%, a change that ended the era of negative rates in Europe.

A 75 basis point increase followed will increase to -0.25% on June 16, which was the first rate increase in 15 years. Prior to that, the Swiss Central Bank had kept rates at -0.75% since 2015.

This comes after inflation in Switzerland hit 3.5% last month, the highest level in three decades.

The bank said the rate hike “counteracts further increases in inflationary pressures and the spread of inflation to goods and services that have so far been less affected.”

He added that a further rate increase “cannot be ruled out”.

The increase was in line with economists’ expectations, according to a Reuters poll.

The Swiss franc sharply weakened against the dollar and euro after the rate hike. At 9:15 a.m. London time, the exchange rate of the dollar against the Swiss currency rose by 1.24%, the euro by 1.6%.

Earlier this week, the Swiss franc hit its strongest level against the euro since January 2015, as economists began to speculate on the prospect of a 75 basis point hike.

Switzerland was the last country in Europe to hit a negative discount rate as the region’s central banks aggressively raised rates to deal with soaring inflation.

Japan is now the last major economy with a central bank in negative territory after the Bank of Japan decided keep your interest rates on hold by -0.1% on Thursday.

Denmark, meanwhile, ended its nearly decade-long run of negative rates on September 8 when the central bank raised its key rate by 0.75 percentage points to 0.65%.

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More recently, the Central Bank of Sweden increased the interest rate to 1.75% on 20 September. The 100 basis point increase came as the Riksbank warned that “inflation is too high”.

European Central Bank moved above zero when it raised rates to combat the rapid inflation September 8.

The ECB may continue to raise rates, but future hikes will not be as sharp as the last 75 basis point hike on September 9, according to ECB Governing Council member Edward Szykluna.

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