Central banks in London and Zurich are keeping key interest rates stable

2023-09-21 15:55:35

On Thursday, two important central banks canceled the interest rate increases that were actually expected by the majority of economists. The British central bank surprisingly decided by a narrow majority to leave the key interest rate unchanged at 5.25 percent. The pound responded with losses. The price temporarily fell by more than 0.5 percent to 1.15 euros on Thursday afternoon. That was the lowest level since May.

Economists had previously largely expected an interest rate increase in London to 5.5 percent. But the Bank of England has now decided that inflation pressure is easing and therefore no further interest rate hike is currently necessary. The decision was narrowly passed with five votes to four in the MPC monetary policy committee. BoE Governor Andrew Bailey’s vote was decisive. “Inflation has come down a lot in the last few months and we think it will continue to do so,” Bailey said. In August, the inflation rate fell from 6.8 to 6.7 percent, although gasoline prices rose. Many economists, however, point to the high core inflation rate and rising service prices. The central bank also decided to reduce its bond holdings by 100 billion pounds to 658 billion pounds next year. This will accelerate the so-called “quantitative tightening” by £20 billion.

The Swiss National Bank (SNB) also surprisingly decided on Thursday to leave the key interest rate unchanged at 1.75 percent. The majority of economists had previously forecast an increase of 0.25 percentage points. However, this could also happen at a later date. “The fight against inflation is not over yet,” SNB President Thomas Jordan told reporters in Zurich.

A decision will be made in December as to whether further tightening of monetary policy is necessary to ensure price stability. According to the SNB’s definition, price stability exists when inflation is between 0 and 2 percent. Inflation was 1.6 percent in August. Jordan attributed the decline in inflation, which peaked at 3.5 percent in Switzerland, primarily to the lower price increase for imported goods and services. However, he expects inflation to rise slightly again as a result of rising rents and energy prices. The SNB expects an average inflation rate of 2.2 percent for this year and next.

Published/Updated: Markus Frühauf Published/Updated: Winand von Petersdorff-Campen, Washington Published/Updated: , Recommendations: 2

Unlike the British and Swiss central bankers, the Swedish Riksbank and the Norwegian central bank each raised their key interest rates by 0.25 percentage points on Thursday. Analysts said it was likely that these would be the last rate hikes in Sweden and Norway for the time being.