(Bloomberg) -- The Swiss National Bank raised interest rates by 75 basis points to bring borrowing costs above zero for the first time in almost eight years, following recent moves in the euro region. 

The hike takes Switzerland’s policy rate to 0.5% and marks the central bank’s most aggressive tightening action in two decades. 

But while the move matched the median prediction of economists in a Bloomberg survey, it surprised some in the market who had been expecting a bigger step of 100 basis points. The Swiss franc tumbled in response, falling as much as 1.8% against the euro to 96.79 centimes. 

“It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term,” SNB President Thomas Jordan  told reporters in Zurich on Thursday, adding that he and his fellow policy makers are willing to intervene in currency markets if needed. 

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The decision ends Europe’s decade-long experiment with negative borrowing costs. Globally, the only central bank left with subzero policy is now the Bank of Japan, which earlier on Thursday held its benchmark at -0.1%. 

To help adjust to the exit from negative rates, the SNB also decided to tier the remuneration of banks’ sight deposits. Up until a certain threshold, financial institutions get the policy rate, and after that zero percent applies. The central bank also pledged “liquidity-absorbing measures.” 

“The tiered remuneration of sight deposits creates an incentive for account holders to carry out money market transactions with each other even in a situation of liquidity surplus,” SNB Governing Board member Andrea Maechler said.

The SNB hike is the second move by policy makers in Zurich to confront inflation in a year when about 90 counterparts have also raised rates. Around half of them have acted with at least 75 basis points in one shot, with the Federal Reserve delivering a third such step on Wednesday. 

The SNB has now matched the European Central Bank’s 1.25 percentage point of tightening since July.

Zurich policy makers are trying to contain inflation that is above 3%, but remains a fraction of that of surrounding countries. Switzerland’s economy has long been more resilient too. Economists surveyed by Bloomberg reckon it will keep growing until the end of next year, while slowdowns are predicted for the euro zone’s three largest economies. 

In new economic forecasts presented Thursday, the SNB cut its forecast for this year’s growth to about 2% from around 2.5% predicted in June. It now sees inflation averaging at 3% in 2022 before slowing to 2.4% next year and 1.7% in 2024. 

Inflation “is likely to remain at an elevated level for the time being,” Jordan said.

One reason for the lower inflation rate is Switzerland’s strong currency. Since early 2021, the franc has appreciated against the euro, and it breached parity with that currency in recent months. 

SNB’s next rate decision takes place on Dec. 15. Unlike the ECB, Switzerland’s central bank only convenes quarterly. 

(Updates franc pricing in third paragrah)

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