By Brian Blackstone 

At a time when most rich countries are following the U.S. Federal Reserve in moving away from crisis-era policies, Switzerland stands apart.

Its central bank on Thursday left its key policy rate at minus 0.75% despite what a government report has called a "booming" economy. In the U.S., where the economy has exhibited similar strong growth and low joblessness--albeit with higher inflation than in Switzerland--the Federal Reserve has already raised interest rates seven times since late 2015 and is expected to deliver an eighth next week.

In Norway, which like Switzerland isn't part of the euro but depends on the eurozone for exports, the central bank raised its policy rate for the first time in seven years Thursday, to 0.75% from 0.5%. It said it would adopt a "cautious approach" to future moves, and expects its key rate to reach 2% by the end of 2021, which is close to where the Fed's key rate is now.

Analysts expect Sweden's central bank, another non-euro member in Europe--to raise rates in December. The European Central Bank is expected to end bond purchases under its quantitative easing program at the end of 2018, and has put rate increases on the table starting in about one year.

None of the Europeans are in a rush, but they seem less cautious than the Swiss.

The SNB's inaction in the face of a sub-3% unemployment rate and 3.4% annual economic growth in the second quarter underscores the jagged process central banks around the world have undertaken to wean their economies off emergency measures taken during the global financial crisis and Europe's debt crisis.

It isn't just the wealthiest economies that face conflicting signals. On Thursday, the South African Reserve Bank kept its repo rate at 6.5%, highlighting a dilemma confronted by other developing countries such as Turkey. Their economies are slowing, but national currencies hit by global trade tensions and the Fed's rate rises are forcing them to keep monetary policy tight. The SARB lowered its growth forecast for this year to 0.7%, and said the outcome could be weaker if global conditions sour.

"Medium-term risks are tilted to the downside due to elevated uncertainty arising from escalating trade tensions and tightening global financial conditions," Governor Lesetja Kganyago said in a news conference.

In contrast, the SNB said Swiss gross domestic product should grow between 2.5% and 3% this year. However, it reduced its inflation forecast for 2020 to 1.2% from 1.6%.

The SNB's past caution on the economy "did not prepare us for this bumper growth we've seen," said Karsten Junius, chief economist at Bank J. Safra Sarasin. "They don't seem to be in line with reality so far."

While decisions by the Fed and ECB tend to dominate financial markets, those by the Swiss and other smaller central banks can also reverberate through bond and currency markets. In Switzerland's case, it is home to global companies such as Nestlé SA and Swatch Group AG that are sensitive to exchange rates. Swiss banks, which include UBS Group AG and Credit Suisse Group AG, have paid over five billion francs ($5.17 billion) to the SNB because of negative interest rates, which force financial institutions to pay in order to park certain funds with the central bank.

The policy has also led to a boom in Switzerland's housing market, which, if it were to fizzle, would have a big effect on the economy.

"I am not suggesting they should undo negative rates now, but it's time to start signaling what's going to happen," said Stefan Gerlach, chief economist at EFG Bank in Zurich.

But the SNB is limited in what it can do because it has effectively tethered itself to the euro in recent years. The Swiss franc has typically been a strong currency given Switzerland's status as a safe haven, meaning investors flood to it in times of global stress. With the franc rising sharply at the height of Europe's debt crisis, in 2011 the SNB imposed a floor on how weak the euro could trade against the franc. It defended that target for over three years--amassing hundreds of billions of dollars' worth of foreign assets in the process--before abandoning it in January 2015, when it also cut the deposit rate to its current level.

Many analysts think the Swiss will wait until the ECB raises its deposit rate--currently minus 0.4%--before following suit.

"If they just do what the ECB does, they might as well have the euro," said Mr. Gerlach.

Paul Hannon contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

September 20, 2018 10:44 ET (14:44 GMT)

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