BERN: Central banks across Europe raised interest rates on Thursday (June 16), some by amounts that shocked markets, and hinted at even higher borrowing costs to rein in runaway inflation that is eroding savings and squeezing corporate earnings.
Initially fueled by rising oil prices following the Russian invasion of Ukraine, inflation has spread to everything from food to services, with double-digit readings in parts of the continent.
Such levels have not been seen in some places since the aftermath of the oil crisis of the 1970s.
The Swiss National Bank and the Hungarian National Bank caught markets off guard with big strides higher, just hours after their US counterpart the Federal Reserve raised rates to the highest in nearly three decades.
Meanwhile, the Bank of England raised borrowing costs by the quarter point that markets had expected.
The moves come just a day after the European Central Bank agreed plans at an emergency meeting to contain borrowing costs in the bloc’s south so it can go ahead with rate hikes in both July and September.
“We are in a new era for central banks, where reducing inflation is their only goal, even at the expense of financial stability and growth,” said George Lagarias, chief economist at Mazars Wealth Management.
The biggest moves on the day came in Switzerland, where the SNB raised its benchmark rate to -0.25 percent from -0.75 percent, a step so big that not a single economist polled by Reuters had forecast it.
However, the SNB’s first hike since 2007 is unlikely to be its last, and the bank could be out of negative territory this year, some economists said.
“The new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future,” SNB Chairman Thomas Jordan told a news conference.
The Swiss franc jumped nearly 1.8 percent against the euro following the decision and was headed for the biggest daily rise since January 2015 when the SNB unpegged the franc from its peg to the euro.