Swiss National bank abandons currency ceiling Switzerlands central bank is discontinuing its currency ceiling of SFr1.2 per euro, introduced in the middle of the eurozone crisis, and has significantly lowered interest rates, lowering the deposit rate to -0.75 per cent. The minimum exchange was introduced after the eurozone crisis triggered immense inflows into what is considered one of the worlds safest harbours for money, and caused a dramatic appreciation in the Swiss franc. In 2011 the Swiss franc and the euro nearly reached parity, before the Swiss central bank felt forced to step in and introduce the ceiling - and enforce it by printing francs to buy billions of euros worth of eurozone bonds. The Swiss National Bank said it is also moving the target range for three-month Libor further into negative territory, to between –1.25 per cent and −0.25 per cent, from the current range of between −0.75 per cent and 0.25 per cent. Explaining the shock move, the bank said: While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation. Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified. On the interest rate move it said: The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions. The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions.
Posted on: Thu, 15 Jan 2015 10:31:03 +0000