Central Banks Diverge on Rates as Energy Prices Threaten Higher Inflation — 2nd Update

By Ed Frankl and Dominic Chopping

Central banks in Europe have responded in diverging ways to the prolonged period of high energy prices, with Switzerland and Sweden holding their key rates Thursday but Norway tightening borrowing costs.

The Swiss National Bank left its main interest rate unchanged as expected at 0% for the fifth straight quarterly meeting, while the Riksbank continued to hold its rate at 1.75%, where it has been since last September. The Norges Bank raised its key rate to 4.5% from 4.25%.

Higher fuel prices since the closure of the Strait of Hormuz have prompted central banks globally to increase borrowing costs in an effort to contain inflation, although at different speeds. The European Central Bank and Federal Reserve raised interest rates, while the Bank of England left its key rate unchanged.

But while the annual rate of inflation has moved above the targets set by central banks in most economies, the pace of price rises in Switzerland and Sweden has remained subdued given their low reliance on imported fossil fuels.

Medium-term inflationary pressure has increased only slightly since its prior meeting in June, the SNB said. The Riksbank noted that inflation is low due to temporary tax cuts, but indicators suggest it will rise in the near term.

By contrast, inflation in Norway has been above target for several years. A somewhat tighter monetary-policy stance is needed to return inflation to target, the Norges Bank said.

"It will likely be necessary to keep the policy rate elevated for a time, and the Committee is prepared to raise the policy rate further if needed to bring inflation down to the 2% target within a reasonable time horizon," Norges Bank Governor Ida Wolden Bache said.

Switzerland and Sweden are less exposed to the energy price swings of their European neighbors due to lower reliance on imported oil and gas from the Middle East. However, Switzerland's inflation rate has picked up due to higher energy costs, and economic growth was--like in Sweden and Norway--surprisingly strong in the second quarter.

While economists vary on their forecasts for the SNB's interest rate, investors expect the bank to hike rates twice by a quarter-point by June 2027, according to LSEG. The SNB, nevertheless, indicated it was in no rush to act, saying monetary policy is appropriate to keep inflation at target.

Switzerland's central bank earlier this year expressed concern over the appreciation of the franc, given the country's status as a safe haven for investors during times of geopolitical uncertainty. A stronger franc lowers inflation and makes exports less competitive.

However, at Thursday's meeting it removed a section of its communication that stated an increased willingness to counter a rapid and excessive appreciation of the Swiss franc.

After the rate decisions, the Swiss franc was slightly down, while the Norwegian krone and Swedish krona were a little up against the euro.

In Sweden, the depreciating krona against the euro could prompt the Riksbank to act faster. The krona has lost around 4% against the single currency in the past six months.

The central bank's rate-path guidance showed a raised probability of tightening before the end of the year. Investors expect at least four quarter-point hikes by May next year.

Write to Ed Frankl at edward.frankl@wsj.com and Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 24, 2026 05:04 ET (09:04 GMT)