(Bloomberg) -- Inflation remains high in Switzerland and interest rate increases are necessary to keep it under control, according to Swiss National Bank President Thomas Jordan.
“Inflation is above our threshold for price stability,” Jordan said on Thursday in Interlaken, Switzerland, where he was attending a conference with Swiss and international policymakers. “We have second-round effects, third-round effects, so inflation is more persistent than we initially thought.”
It’s Jordan’s last public appearance before the SNB’s upcoming interest-rate decision on June 22. With the Federal Reserve approaching a possible pause in interest rate-increases, a number of other central banks have indicated a preference to keep going in the fight against inflation.
The current Swiss interest rate of 1.5% “is relatively low, and it’s not a really good idea to wait and then have higher inflation later,” Jordan said.
The Swiss franc jumped on his comments. It climbed 0.5% to 0.96950 against the euro and hit a more than one-week high of 0.9018 versus the dollar.
Economists expect the Swiss central bank to continue with a further 25 basis-point hike, even though the country’s inflation remains the slowest in the developed world and the gauge for underlying price pressures this week dipped below the institution’s 2% target ceiling.
So far, the SNB has lifted borrowing costs by 225 basis points in nine months and officials have been consistent in saying that another interest-rate increase can not be excluded.
But with inflation slowing globally and the world’s economy heading for weaker growth, other central banks — most notably the Fed — are reassessing their priorities.
“We’re still dealing with inflation and on top of that we have had financial and banking fragility,” said Pierre-Olivier Gourinchas, director of the International Monetary Fund’s research department, who spoke alongside Jordan. “There are still some vulnerabilities in the regional banks in the US and in the non-banking sector in the US, but also in Europe and in emerging markets.”
The Fund sees headline inflation declining globally on the back of lower commodity prices but notes that underlying price pressures are likely to prove more sticky. “Inflation’s return to target is unlikely before 2025 in most cases,” it said in its latest world economic outlook.
--With assistance from Constantine Courcoulas.
(Adds market reaction in the fifth paragraph.)
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