The Swiss central bank declared a hefty interest-rate hike to tackle inflation despite turmoil in the banking sector, announcing that authorities halted the crisis at Credit Suisse.

After a dramatic week in which the struggling Credit Suisse bank was acquired by its larger domestic rival UBS, the Swiss National Bank announced interest rates would increase by 50 basis points to 1.5 percent.

The central bank, the Swiss government, and the country's FINMA financial regulators organized emergency talks on Sunday.

"The Swiss National Bank is tightening its monetary policy further and is raising the SNB policy rate by 0.5 percentage points to 1.5 percent," the central bank said in a statement.

"In doing so, it is countering the renewed increase in inflationary pressure. It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term."

The rate change will apply from Friday, it said as quoted by AFP.

"The past week has been marked by the events surrounding Credit Suisse. The measures announced at the weekend by the federal government, FINMA and the SNB have put a halt to the crisis," the SNB said.

According to the central bank in Zurich, inflation increased once again since the year's beginning and reached 3.4% in February.

"It is therefore still clearly above the range the SNB equates with price stability," it said.

The bank stated that the latest rise in inflation was principally due to higher prices for electricity, tourism services, and food.

"The new forecast puts average annual inflation at 2.6 percent for 2023," it said.

The Swiss economy stagnated in the fourth quarter of 2022, according to the central bank. It said that the services sector lost pace and value added in manufacturing declined slightly again.

"For 2022 as a whole, GDP grew by 2.1 percent. The labor market remained robust, and overall production capacity has been well utilized," it said.

"The subdued demand from abroad and the loss of purchasing power due to inflation are having a dampening effect. Overall, GDP is likely to increase by around one percent this year," the bank concluded.

The big picture

The crisis began with two mid-size lenders - SVB and Signature Bank - being taken over by Californian regulators. SVB is considered the second largest bank failure in history, whereas Signature Bank is viewed as the third.

Another bank, First Republic, also found itself in hot water despite it received a $30 billion cash infusion from a consortium of banks.

The crisis has spread to other banks in Europe, including Credit Suisse, which announced it was taking a $53.7 billion loan from the Swiss central bank in a bid to "pre-emptively strengthen its liquidity" a day after stock prices fell by a huge margin as it struggles to nip in the bud a confidence crisis.

After weekend intense talks aimed at preventing a wider international banking crisis, UBS announced it was ready to take over Swiss rival Credit Suisse for $3.25 billion.

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