Switzerland’s central bank unexpectedly left its key interest rate unchanged, saying past hikes were countering inflation while warning that more increases may still be needed.

The Swiss National Bank (SNB) kept the rate at 1.75% but warned that “it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term.”

“The SNB will therefore monitor the development of inflation closely in the coming months,” it said.

It also reiterated its readiness to “be active in the foreign exchange market as necessary” to “provide appropriate monetary conditions”.

The bank’s decision to hit pause on a cycle of monetary tightening, following five consecutive rate hikes over the past year, was a bit of a surprise.

Most analysts had expected it to hike the rate by an additional quarter point, to avoid allowing too great a gap with the European Central Bank rate.

But few had ruled out that the SNB might decide to leave its rate unchanged, after Swiss economic activity stagnated in the second quarter.

Inflation has also dipped below the 2% mark in Switzerland since June, and last month it fell to 1.6% on an annual basis, in line with the central bank’s objective.

The SNB left its inflation outlook unchanged at 2.2% for 2023 and 2024, and lowered it for 2025 to 1.9% down from its forecast of 2.1% in June.

“It is thus just within the range of price stability at the end of the forecast horizon,” the bank said.

It said it expected growth to remain weak for the rest of this year, maintaining its outlook that GDP would grow by around 1%.

“Subdued demand from abroad, the loss of purchasing power due to inflation, and more restrictive financing conditions are having a dampening effect,” it said.

The Swiss decision came after the US Federal Reserve last night also held interest rates steady, although it said another hike is likely in 2023, with fewer cuts than anticipated in 2024.

The Norwegian and Swedish central banks hiked their own rates today while warning that more tightening was likely in the future.

The Bank of England halted its long run of interest rate increases today as the British economy slowed, but it said it was not taking a recent fall in inflation for granted.