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Swiss introduce negative interest to keep the safe-haven franc from rising higher


Swiss introduce negative interest to keep the safe-haven franc from rising higher


The Swiss National Bank has announced a negative interest rate for the first time since the 1970s.

In a surprise statement, the SNB said it would impose an interest rate of -0.25 percent on more than 10 million Swiss francs in commercial bank deposits from January 22, when the European Central Bank holds its next meeting.

That means banks will have to pay to keep francs on deposit.

The hope is that the move will stop the flow of money into the swiss currency which is being used as a safe haven because of the rouble crisis in Russia and investors fears of the eurozone weakening further.

“Rapidly mounting uncertainty on the financial markets has substantially increased demand for safe investments,” SNB Chairman Thomas Jordan told a news conference in Zurich. “The worsening of the crisis in Russia was a major contributory factor in this development.”

Demand for Swiss francs has pushed up its value, threatening Switzerland’s economy which is heavily dependent on exports.

After the announcement the franc fell to its lowest against the euro since mid-October.

Geoffrey Yu, a currency strategist at UBS in London said the SNB’s action should give it some breathing space in the short term: “If you hold Swiss francs right now you do have to bear a cost. New buyers will be forced to think twice.”

But Swissquote analyst Peter Rosenstreich described the moved as “no silver bullet” and said the SNB will face pressure in the long-term to take more action.

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