• The SNB unexpectedly increases by half a percent
  • Bank of England raises rates by 25 basis points
  • Hungary unexpectedly raises one-week deposit rate
  • Inflation painfully high and not yet at its peak

BERN/LONDON, June 16 (Reuters) – Central banks across Europe hiked interest rates on Thursday, some by an amount that shocked markets, and hinted at even higher borrowing costs high to control soaring inflation that is eroding savings and squeezing corporate profits.

Fueled initially by soaring oil prices following Russia’s invasion of Ukraine, inflation has spread to everything from food to services, with readings in the double digits in some parts from the continent.

Such levels have not been seen in some places since the aftermath of the oil crisis of the 1970s.

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The Swiss National Bank and the National Bank of Hungary both caught markets off guard with big hikes, just hours after their US counterpart, the Federal Reserve, raised rates the most in nearly three decades. Read more

The Bank of England meanwhile raised its borrowing costs by a quarter point in the markets. Read more

The moves come just a day after the European Central Bank agreed at an emergency meeting to plans to contain borrowing costs in the southern bloc so it can go ahead with rate hikes. in July and September. Read more

“We are in a new era for central banks, where lowering inflation is their sole objective, even at the expense of financial stability and growth,” said George Lagarias, chief economist at Mazars Wealth Management.

The biggest moves of the day came in Switzerland, where the SNB raised its benchmark rate to -0.25% from -0.75%, a step so big as no economist polled by Reuters had predicted. .

However, the SNB’s first hike since 2007 is unlikely to be its last and the bank could break out of negative territory this year, some economists have said.

“The new inflation forecasts show that further increases in the policy rate may be needed for the foreseeable future,” SNB Chairman Thomas Jordan told a news conference.

The Swiss franc jumped nearly 1.8% against the euro on the move and was heading for the biggest daily rise since January 2015, when the SNB unhooked the franc from its euro peg.

TIGHTROPE

In London, the Bank of England was more cautious but said it was ready to act “forcefully” to avert the dangers of an inflation rate exceeding 11%. Read more

It was the fifth time the BoE raised borrowing costs since December and the UK benchmark rate is now at its highest since January 2009.

Three of the nine rate setters, however, voted for a larger 50 basis point hike, suggesting the bank will be under pressure to keep raising rates even if economic growth slows sharply.

“Central bankers are teetering on a tightrope, with the utmost concern that raising rates too quickly could tip economies into recession,” said Maike Currie, chief investment officer for personal investing at Fidelity International.

“Tightening monetary policy is a very brutal tool to manage a very precarious situation.”

Despite the rise, the pound fell sharply as some in the market had been betting on a bigger move given the Fed’s 75 basis point hike the night before. The weaker currency, however, means higher imported inflation and additional pressure to raise rates. Read more

The pound was last at $1.2085 against the dollar, down three-quarters of a percent on the day.

Meanwhile, in Budapest, the Hungarian central bank unexpectedly raised its one-week deposit rate by 50 basis points to 7.25% in a weekly tender, also to tame inflation in stubborn increase which is now in double digits.

Barnabas Virag, the bank’s deputy governor, said the increase was far from the last and that the bank would continue its cycle of rate hikes with “predictable and decisive” steps until it see signs that inflation is peaking, probably in the fall.

The rise also comes as the national currency has lost almost 7% of its value this year, further increasing inflation via rising import prices.

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Written by Balazs Koranyi in Frankfurt; Additional reporting by William Schomberg in London, Krisztina Than in Budapest, Mike Shields and Silke Koltrowitz in Zurich; Editing by Toby Chopra

Our standards: The Thomson Reuters Trust Principles.

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