The Swiss National Bank introduced a negative deposit rate to defend the economy as the Russian financial crisis and the threat of further eurozone stimulus pressured the Swiss franc.
A charge of 0.25 percent on sight deposits, the cash-like holdings of commercial banks at the central bank, will be imposed as of Jan. 22, the Zurich-based institution said in a statement yesterday.
That is the same day as the European Central Bank’s (ECB) next decision.
The Swiss National Bank move follows Russia’s surprise interest-rate increase earlier this week and hints at the investment pressures that resulted after that decision failed to stem a run on the ruble. Combined with the imminent threat of quantitative easing from the ECB, Swiss officials acted at a time when the franc was stuck too close to comfort from its 1.2 per euro ceiling.
“Over the past few days, a number of factors have prompted increased demand for safe investments,” the Swiss National Bank said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”
The franc weakened after the announcement, trading at 1.2063 Swiss franc per euro at 9:04am in Zurich. Against the US dollar it fell to SF0.9795.
“This is not the magic bullet, but will buy them time,” said Peter Rosenstreich, head of market strategy at Swissquote in Gland, Switzerland. “This will relieve pressure from the floor in the short term, but not in the long term.”
The Swiss National Bank expanded its target range for the three-month LIBOR to minus-0.75 percent to 0.25 percent. Officials also confirmed their commitment to the minimum exchange rate of SF1.2 per euro.
“This is the right measure, and one has to point out positively that there are large exemptions,” said Karsten Junius, chief economist at Bank J. Safra Sarasin AG in Zurich. “The timing is suspicious because the fee will be charged starting on Jan. 22.”
Junius was referring to the ECB policy meeting, that is scheduled for that day. Policymakers are set to use that meeting to consider expanding debt purchases beyond covered bonds and asset-backed securities to prevent a deflationary spiral.
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