The Swiss National Bank (SNB) should soon start to “normalise its monetary policy” the International Monetary Fund (IMF) said, after holding the lowest interest rate in the world for most of the last 10 years.

“After a long period of very accommodative monetary policy -- a policy rate of -0.75% since 2015 -- the time may be approaching to normalise monetary policy,” the IMF said on Wednesday within its annual review of economic developments in Switzerland. 

Although other central banks across the globe are hiking borrowing costs, a rate hike in Switzerland is not forecast by economists until the middle of next year. However, according to a Swiss Info report, markets are betting the euro area will increase rates in September, December, January and March.

IMF Mission Chief for Switzerland Mark Horton said that there’s “not a need to move now,” but the Swiss National Bank should anticipate inflation “running somewhat higher” than its current predictions.

“The SNB saw inflation moving higher to 2.1% this year before coming back to 1% in 2023. We see inflation a little bit higher this year than the SNB and perhaps a little bit higher next year as well,” he said.

The IMF said Switzerland will likely be able to ease higher inflation by the appreciation of the Franc or adjustments to policy rate if required: “Inflation gaps versus the euro area and the U.S. suggest possible room for nominal Franc appreciation to ease inflation pressures.” 

However, Horton went on to say: “A sharp sudden tightening of financial conditions could trigger a price correction and challenges for households, banks and the Swiss economy more generally.”

The International Monetary Fund praised Switzerland’s robust recovery from the Covid crisis, thanks to “sound, supportive and agile domestic policies.”