SNB imposes negative interest rates

Switzerland’s National Bank said it would impose negative interest rates on cash held on ‘sight deposits’ balances, in an attempt to lower the currency value and discourage anxious investors from investing in safe-haven buying brought about by the crisis in Russia and the decline in oil price.

In a brief statement, the SNB said it would introduce an interest rate of -0.25 per cent on instant access accounts of over 10 million Swiss francs and expand its three-month Libor target range to between -0.75 per cent and 0.25 per cent. The measures will take effect from January 22nd 2015.

The move will make it less attractive for investors to hold Swiss franc investments, and will also have an effect on the exchange rate: the franc fell after the announcement to its lowest against the euro since mid-October and to its weakest against the US dollar since May 2013.

The Central Bank has put a cap of the currency from falling below 1.20 per Euro, although the currency has dipped to levels nearing to the cap.

The head of market strategy for the SNB said the move is likely to strengthen the currency back to the national cap, however analysts have warned negative rates could be expensive for Switzerland’s large banking sector, trigger deflation and have an adverse effect on pension funds and money market funds.

The Swiss franc is deemed the most safe-haven currency after the Japanese Yen, and typically sees money flow in during economic uncertainty.