Switzerland Monetary Policy


Switzerland: Swiss National Bank moves interest rates into negative territory

December 18, 2014

In a surprising unscheduled meeting on 18 December, the Swiss National Bank (SNB) decided to impose an interest rate of minus 0.25% on sight deposit accounts in the Central Bank with the aim of taking the three-month Libor target rate into negative territory. According to the Bank, it is now expanding the target range of 0% to 0.25% to minus 0.75% to plus 0.25%. The SNB also reaffirmed its commitment to continue intervening in the foreign exchange market to prevent the Swiss franc from surpassing 1.20 CHF per EUR. The Bank’s decision, effective as of 22 January 2015, followed monetary authorities’ previous decision to leave interest rates unchanged at the scheduled 11 December meeting.

Commenting on the decision, the Central Bank recognized that, “over the past few days, a number of factors have prompted increased demand for safe haven investments.” The SNB added also that, “the introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate”. The Bank concluded that it, “is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required.”

The Swiss franc has come under considerable strain in the past weeks and has approached the 1.20 CHF per EUR floor that was established by the Swiss National Bank (SNB) in September 2011. This came against a backdrop of rising uncertainty among investors, whose increasing appetite for safe-haven assets reflects concerns over deteriorating growth prospects for the global economy. In recent days, the currency strengthened as concerns mount regarding falling oil prices, the currency crisis in Russia and speculation that the European Central Bank will embark on a quantitative easing program in 2015.

The Bank’s decision took analysts by surprise and FocusEconomics Consensus Forecast panelists are still factoring the latest developments. Forecasters expect that the three-month Libor target to end 2015 within the range of 0% and 0.25%. For 2016, panelists see the Bank tightening the reins.

Author:, Senior Economist

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Switzerland Monetary Policy Chart

Switzerland Monetary Policy December 2014 0

Note: 3-month Swiss Franc LIBOR target in %. Current rate is set to a range of between 0% and 0.25%.
Source: Swiss National Bank (SNB).

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