SNB introduces negative interest rates
The Swiss National Bank (SNB) has announced the reduction of its target range for the three-month Libor range into negative territory as of 22 January, in a bid to counteract a further appreciation of the Franc.
The SNB confirmed the introduction of a -0.25% interest rate on sight deposit account balances thus expanding the target rate for the three-month Libor to -0.75% to 0.25%. An exemption threshold of at least CHF10m (€8.31m) is applied to each individual account holder.
Following on from the announcement, the Franc dropped by 0.22% to a two month low against the Euro.
“Over the past few days, a number of factors have prompted increased demand for safe investments” the SNB stated in reference to the currency crisis in Russia, which put growing pressure on the 1.20 cap against the Euro.
Commenting on the impact for the Swiss Asset Management Industry, Markus Fuchs, managing director of SFAMA stated: “Currency is one of many other factors to take into account when analaysing the competitiveness of the financial industry. In addition, the impact of a strong Franc will be limited for investors, because they can decide independently whether to conduct investments denominated in CHF or another currency.”
“For CHF denominated products there is, if required still the option to use futures or currency certificates as a currency hedge. The low interest (Libor)is the price tag attached to the safety measures, ” Fuchs added.
The SNB measures will be implemented as of 22 January, the date of the first monetary policy meeting of the European Central Bank’s governing council in the new year.