Swiss National Bank raises rates, says Credit Suisse takeover prevented larger crisis

The Swiss National Bank raised its benchmark interest rate by 50 basis points on Thursday and said UBS's takeover of Credit Suisse had averted a financial disaster, adding it was now critical the merger took place in a smooth and fast way.

The multi-billion Swiss francs rescue package brokered by the SNB, government and regulator on Sunday prevented a systemic crisis, SNB Chairman Thomas Jordan said.

"If this solution hadn't worked, Credit Suisse would have failed, with extreme consequences for Switzerland but also the global economy," he told a press conference.

"In the last few weeks there was a real erosion in confidence in the banking world and in order to halt it - we needed another solution besides liquidity," Jordan said.

The SNB Chairman said it was vital for UBS's takeover of the 167-year-old Credit Suisse to go through as smoothly as possible in order to maintain financial stability.

"UBS made a full commitment to the takeover of Credit Suisse... now it is extremely important that both parties do everything possible that the takeover will be successful," he said, adding the next two weeks would be crucial.

His SNB governing council colleague Martin Schlegel declined to comment on when he expected the deal to go through.

Schlegel also declined to comment on whether UBS and Credit Suisse had used any of the 200 billion Swiss francs in emergency liquidity offered by the SNB.

Jordan told Reuters in a separate interview he didn't see the banks needing more liquidity, saying the current instruments were "very big, they are bold".

Switzerland's financial market regulator FINMA on Thursday defended its decision to impose steep losses on some Credit Suisse bondholders under the deal, saying the decision was legally watertight.

RATE HIKE

The dramatic events of the last 10 days overshadowed Thursday's fourth interest rate hike in succession by the SNB as it seeks to battle stubborn Swiss inflation, which at 3.4% in February - remains outside the SNB's target band of 0%-2%.

The central bank said further rises could not be ruled out.

"If you look at our newest inflation forecast, we see there is some necessity to continue to tighten monetary policy," Jordan told Reuters. "Of course we will look in three months if this is still the case or not.

The SNB also said it was willing to be active in the foreign exchange market if necessary.

It recently switched from selling Swiss francs to buying the currency to increase its value as a way to dampen the effect of imported inflation.

Central banks around the world have been hiking rates in recent weeks to check inflation.

The Swiss move on Thursday matched the European Central Bank's (ECB) 50-basis-point increase last week, while Norway's central bank also raised its benchmark interest rate on Thursday

The U.S. Federal Reserve on Wednesday raised its main interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases.

The Bank of England is expected to increase its interest rate by a quarter percentage point later on Thursday.

The Swiss hike was in line with the majority of economist forecasts according to a Reuters poll.

Economists expect further hikes as the SNB fights Swiss inflation, which last year hit its highest since 1993.

"Further moves could be in the pipeline," said Gero Jung, an economist from Mirabaud. "In sum, a hawkish hike from the SNB."