Switzerland Introduces Negative Interest Rate

The Swiss National Bank decided to move to a deposit rate of -0.25 percent effective January 22nd, aiming to cool franc appreciation. The target range for three-month Libor was expanded to a 100 bps band of -0.75 percent to 0.25 percent.

Russian financial crisis and Euro Area monetary stimulus increased demand for safe assets, putting pressure on the franc. In an attempt to make it less attractive to hold Swiss franc investments, the central bank will impose an interest rate of –0.25 percent on deposit account balances at the central bank above 10 million Swiss francs. 

Excerpts from the SNB press release:

The Swiss National Bank (SNB) is imposing an interest rate of –0.25% on sight deposit account balances at the SNB, with the aim of taking the three-month Libor into negative territory. It is thus expanding the target range for the three-month Libor to –0.75% to 0.25% and extending it to its usual width of 1 percentage point. Negative interest will be levied on balances exceeding a given exemption threshold.

Negative interest will be charged as of 22 January 2015 until further notice. Negative interest is charged only on the portion of the sight deposit account balance which exceeds a certain threshold. The exemption threshold applies to each individual account holder and shall be at least CHF 10 million.

The SNB reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro, and will continue to enforce it with the utmost determination. It remains the key instrument to avoid an undesirable tightening of monetary conditions resulting from a Swiss franc appreciation. Over the past few days, a number of factors have prompted increased demand for safe investments. The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate. The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required.

Switzerland Introduces Negative Interest Rate

SNB | Joana Taborda | joana.taborda@tradingeconomics.com
12/18/2014 10:12:13 AM