(Bloomberg) -- The Swiss National Bank paused its monetary tightening, defying expectations of another interest-rate hike to avoid adding constriction on a stalled economy. 

Policymakers led by President Thomas Jordan left the key rate at 1.75%, an outcome anticipated by only a small minority of economists surveyed by Bloomberg.

“The significant tightening of our monetary policy over recent quarters is countering remaining inflationary pressure,” Jordan said in Zurich. “It cannot be ruled out that a further tightening of monetary policy may become necessary.”

The euro jumped against the Swiss franc after the decision, climbing as much as 0.8% to 0.9656 in its biggest gain since June.

The move, which contrasts with last week’s increase in the neighboring euro area, suggests officials are reassured that inflation already below the SNB’s 2% ceiling isn’t in danger of too much re-acceleration. It suggests more concern about growth, not least after recent gains in the franc. 

The decision “maintains the tension by signaling a tendency toward higher interest rates,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd, who predicted the hold. “This prevents key interest rate cuts from being discussed and priced in next.”

The decision by the SNB, which unveils announcements only once a quarter, widens the gap in rates with its peers. 

Borrowing costs there have increased by 250 basis points since starting out last year, compared with 450 basis points in the euro area and even more in the US.

Fed, Nordics, BOE

The move puts Switzerland in position to keep pausing and let tighter monetary policy feed through the economy in tandem with counterparts around the world, in line with the “higher for longer” stance espoused by Federal Reserve Chair Jerome Powell. 

That outlook was reiterated on Wednesday by US policymakers as they kept rates unchanged and signaled that they’re close to done with hiking. Powell said several times that the central bank can now “proceed carefully.” 

Sweden’s Riksbank followed through with an expected quarter-point rate hike and left the door open to another move, though its own projections don’t fully anticipate one materializing.

In Norway, the central bank also raised rates and sees one more step, most probably in December.

Later on Thursday, Bank of England may raise rates in a final move that hangs in the balance after an unexpectedly slow inflation reading. 

Where Switzerland stands out from other advanced economies — an what allows it to hold while the rest of western Europe is hiking — is its far weaker consumer-price growth.  

In new estimates, the SNB projected inflation of 2.2% in 2023 and 2024, and 1.9% in 2025. That compares with prior forecasts for 2.2% this year and next, and 2.1% after that. 

Growth stalled in the second quarter. The central bank still expects the Swiss economy to grow around 1% this year — down from 2.1% in 2022.

Jordan, who will hold a press conference in Zurich, will likely face questions about the strength of the franc, as investors are going to watch closely for any hints on SNB’s foreign-exchange sales, which have boosted the currency’s exchange rate in the past.

--With assistance from Joel Rinneby, Harumi Ichikura, Kristian Siedenburg, Jana Randow, Alessandro Speciale, Fergal O'Brien, Paula Doenecke and Alice Gledhill.

(Updates with economist comment in sixth paragraph)

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