Switzerland slashed interest rates into negative territory yesterday as its central bank sought to ward off a flood of safe-haven cash from the collapsing Russian rouble.
The Swiss National Bank will in effect charge banks 0.25 per cent to hold deposits at the central bank, following the lead of the European Central Bank which pushed deposit rates into negative territory in June.
The shock move from chairman Thomas Jordan comes in the wake of the rouble’s rout in currency markets this week. International money markets have sought refuge in the Swiss franc, strengthening the currency sharply, denting the overseas earnings of Swiss-based companies such as Nestle and creating a potential deflation headache for the bank.
In 2011, at the height of the eurozone crisis, panicking investors sent the Swiss franc close to parity with the euro. That prompted the SNB to introduce a €1.20 floor at which the central bank would step in to weaken the franc. The combination of woes in Russia and the potential prospect of money-printing from the European Central Bank next year has sent the euro perilously close to the €1.20 level in recent days.
The central bank said: “Over the past few days, a number of factors have prompted increased demand for safe investments. The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”
It also held out the prospect of more interventions. “The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required,” it said.
The negative rate, to be introduced in January, only applies on deposits over SFr10m (£6.5m), meaning the vast majority of Swiss citizens will be unaffected.
It came as the rouble endured another rocky season, with President Vladimir Putin saying Russia’s current economic difficulties could last for the next two years. The currency began the session with gains but these were quickly wiped out when he said Russia’s central bank would not waste foreign reserves – currently £419bn – propping up the rouble.
Russia – hammered by the near 50 per cent fall in oil prices since June – hiked interest rates to an eyewatering 17 per cent overnight on Monday in an attempt to defend the currency.
The dollar also strengthened against the pound overnight as the US Federal Reserve’s chairman Janet Yellen said policymakers would be “patient” on rate rises but flagged tightening potentially as early as April.Reuse content