In line with the ECB last week and the Federal Reserve yesterday, the SNB today opted to tighten policy again in the face of the ongoing turmoil in the banking sector. The policy rate was raised by a further 50 basis points, matching the December hike and putting the benchmark rate at 1.50 percent. The bank also noted that additional rate hikes may be necessary to meet its price stability goals. Coming just days after the run on Credit Suisse and its enforced takeover by UBS, the move should be seen as another indication of the central bank's determination to get inflation back under control.

As before, banks' sight deposits held at the SNB will be remunerated at the new policy rate up to a certain threshold above which they will be remunerated at 1.0 percent. This maintains the 0.5 percentage point discount with the policy rate. The tiered structure is aimed at ensuring that secured short-term local money market rates are held close to the policy rate.

Also in line with its December edition, the new Monetary Policy Assessment (MPA) reaffirms the bank's preparedness to intervene in the FX markets on both sides as necessary to keep the level of the Swiss franc broadly stable. What a year ago would have been seen as an unacceptably strong local currency has become an integral part of the SNB's effort to get inflation back below 2 percent.

However, despite today's tightening, the updated economic forecast shows inflation higher than expected in December. The new projections are for average annual inflation of 2.6 percent this year (versus 2.4 percent in December), 2.0 percent in 2024 (1.8 percent) and 2.0 percent in 2025. Meantime, growth this year is now put at 1.0 percent, up 0.5 percentage points from last time but subject to a high degree of uncertainty.

Today's aggressive move was much as expected but the overall tone of the MPA is probably rather more hawkish. Crucially, inflation is seen at or above 2 percent throughout the forecast horizon which means that policy will be operating with a tightening bias. Official interest rates are likely quite close to their peak now but another increase in June is very much a possibility.

Credit Suisse bailout or not, the SNB is seen hiking rates by 25 to 50 basis points at its March MPA.

The Swiss National Bank (SNB) usually announces any changes to its monetary stance at its quarterly Monetary Policy Assessment. However, adjustments can be made at any time. Since 2000 monetary policy has consisted of the following three elements: a definition of price stability, a medium-term inflation forecast and a target range for a reference interest rate, the three-month Swiss franc Libor (London Interbank Offered Rate). The SNB attempts to secure an annual inflation rate as specified by the consumer price index (CPI) of less than 2 percent. In recent times this has involved sizeable intervention in the foreign exchange market to prevent appreciation of the Swiss franc although since January 2015 there has been no explicit exchange rate target.

The aim of the SNB's monetary policy is to ensure price stability in the medium and long term. By keeping prices stable (2 percent annual inflation rate), the SNB seeks to create an environment in which the economy can fully exploit its production potential. The Bank is required to set its policy to meet the needs of the Swiss economy as a whole rather than the interests of individual regions or industries.

The SNB has traditionally implemented its monetary policy by fixing a target range of 1.0 percentage points at the level deemed appropriate for the three-month Swiss franc Libor. The Bank has then normally sought to hold the rate around the middle of that corridor. However, as a result of strong capital inflows into the local currency prompted by the 2008/09 global downturn, this objective range has been both narrowed and reduced to just 0.0 - 0.25 percent, with a point target of 0.0 percent. In fact, since September 2011 the thrust of policy has been determined largely by the SNB's expressed aim of preventing the CHF strengthening beneath a CHF1.20 floor versus the euro.

The Swiss National Bank publishes its monetary policy assessments on a quarterly basis in March, June, September and December. In these reports it describes the current monetary environment and formulates its monetary policy intentions for the following quarter. It also provides inflation forecasts which help financial markets to formulate of where monetary policy might be headed. Twice a year -- in June and in December -- the Bank holds a media conference. At that time, the Governing Board provides information about the economic situation and comments on its monetary policy.