By Neil MacLucas and Andrew Morse
ZURICH--Switzerland's central bank on Thursday said it would
introduce negative interest rates next year, a measure designed to
cool the strength of the Swiss franc and ward off deflation.
Beginning Jan. 22, the Swiss National Bank will charge banks
0.25% to deposit overnight funds with it, the central bank said in
a statement. The move will push the three-month Swiss franc Libor
rate, currently in a range between 0.0% and 0.25%, into negative
territory.
The SNB's decision comes after months of pressure on the franc,
which has strengthened to near 1.20 a euro, a level the central
bank has pledged for the past three years to defend. A strong
franc, which has benefited from safe-haven buying and weakness in
the eurozone economies, raises the risk of imported deflation and
creates headwinds for the country's exporters, many of whom depend
on the European Union as a key market.
The franc's appreciation against the euro in recent days had
forced the central bank to intervene in the currency markets, SNB
President Thomas Jordan said at a news conference, although he
declined to say how much currency the bank bought. The SNB "can
push the negative rate even lower" if needed he said and reiterated
the bank's commitment to defend the 1.20-franc-to-euro level with
what whatever measures needed.
The Swiss franc immediately dropped on the news, falling to
1.2098 a euro, its lowest level since October. The decision, made
before the stock market opened, also buoyed Swiss shares with the
benchmark SMI trading 1.8% higher.
The SNB's move comes as central banks around the world wrestle
with diverging economies and problems. Europe remains caught in an
easing phase as it battles the specter of deflation, while the U.S.
is starting to consider raising rates for the first time in six
years.
In June, the European Central Bank introduced negative interest
rates on deposits with it, a move designed to encourage banks to
lend rather than park money. The central bank of Denmark, which
isn't part of the eurozone, has also used negative interest
rates.
Overnight, however, the U.S. Federal Reserve signaled it would
raise short-term interest rates, which have been at near zero since
December 2008, sometime next year.
Like other central banks, the SNB is fighting a low-inflation
environment that may be exacerbated by falling oil prices. Last
week, the SNB said it expects the country to fall into deflation
next year, a state that can slow economies by discouraging
spending. Mr. Jordan said the SNB is "trying to avoid negative
inflation extending over a long period" by introducing negative
rates.
The SNB is forecasting mild deflation of an average of -0.1%
over the course of 2015.
"The SNB has bowed to the inevitable," said Kit Juckes, macro
strategist at Société Générale. "If 2015 brings more ECB easing and
the start of Fed tightening, it is going to be difficult to hold it
and this may not be the last step they take."
The SNB's move will widen the range for three-month Swiss franc
Libor, a key interest rate, to minus 0.75% to 0.25%.
Negative interest rates are unusual though not unprecedented. In
1972, the SNB introduced negative interest rates on nonresident
bank balances at Swiss banks, part of an effort to stem a flow of
foreign money into Switzerland. Mr. Jordan said Thursday's decision
wasn't comparable because it was aimed at deterring inflows.
The move is the first change to the SNB's three-year policy of
defending its minimum exchange rate through the purchase of euros,
a practice which has seen its foreign currency reserves swell to
more than 460 billion Swiss francs ($473 billion).
The SNB has insisted in recent months that it wouldn't exclude
the use of negative rates to discourage investor buying of the
franc, but some analysts expected the central bank to wait for the
next move from the ECB.
The Swiss franc's "price action over the last few days suggest
the SNB might have had to purchase material amounts of euros to
defend the 1.20 floor and this may have triggered the move today,"
said UBS currency strategist Beat Siegenthaler.
The SNB said the 0.25% fee will be charged on Swiss franc sight
deposit balances that exceed a certain threshold, which will vary
with account holders, but will be at least 10 million francs.
Chiara Albanese in London contributed to this article.
Write to Neil MacLucas at neil.maclucas@wsj.com and Andrew Morse
at andrew.morse@wsj.com
Access Investor Kit for Schweizerische Nationalbank
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CH0001319265