SNB hikes interest rates by 25 basis points

The Swiss National Bank (SNB) has raised interest rates by 25 basis points, as expected by a majority of the country's economists, citing continuing positive development of the Swiss economy.
The three-month Libor rate range has been raised by 0.25 percentage points to 1.25-2.25 pct, and the National Bank intends to keep the three-month Libor rate in the middle of the target range at 1.75 pct, it said.
Today's move represents the SNB's third consecutive rate hike, following hikes in December, 2005, and March and June, 2006, every time by 25 basis points.
"The economy is broadly based and this is having a positive effect on the labour market," the central bank said.
Consequently, it also hiked its GDP forecast for this year to just under 3 pct, from its previous forecast of a little more than 2.5 pct.
The central bank said that if the economy performs as expected, it "will further pursue the gradual adjustment of its monetary policy".
Inflation is now forecast to reach 1.3 pct in 2006, from 1.2 pct previously.
The SNB said that its move is ensuring that the inflation outlook remains favourable.
On the assumption of an unchanged three-months Libor of 1.75 pct, annual inflation is expected to reach 1.1 pct in 2007, down from 1.2 pct in its previous forecast, and 1.6 pct in 2008.
The SNB said compared with its June assessment, growth in the US is more moderate than expected and the European economy is recovering a little more strongly.
For 2007, the outlook remains favourable, although growth is likely to be somewhat more moderate than in 2006, the SNB said.
These modifications should have no significant impact on the outlook for inflation, it said.
With the global economy remaining dynamic but slowing, Swiss exports are likely to continue to rise albeit at a slower pace, the SNB said.
In addition, equipment investment is expected to grow further due to the healthy level of capacity utilisation, it added.