Swiss National Bank will cut interest rate to minus 0.25%

Switzerland's National Bank (SNB) will bring in a negative interest rate cutting the value of large sums of money left on deposit in the country.

Euro v Swiss Franc

 

The Bank is imposing a rate of minus 0.25% on "sight deposits" - a form of instant access account - of more than 10m Swiss francs ($9.77m).

It is trying to lower the value of the Swiss franc, which has risen recently.

Russia's market meltdown and a dramatic plunge in the oil price have led investors to seek "safe havens". 

The announcement sent the franc lower, and in early trading the euro was buying 1.201 Swiss francs, fewer than the 1.203 it was worth before the news, just within the target.

Switzerland typically sees money flow in during economic uncertainty.

The new rate will be introduced on 22 January.

A negative rate means depositors pay to lend the bank their money.

Geoffrey Yu, a currency strategist at UBS, said: "In the short term it gives them some breathing space.

"If you hold Swiss francs right now you do have to bear a cost. New buyers will be forced to think twice."

Reasons

SNB said in a statement: "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."

The central bank has a cap of one euro equals 1.20 Swiss francs, above which it tries to prevent the franc rising.

Too high a rate has the effect of making Swiss export products more pricey.

Switzerland is also chary about attracting yet more money into its banking heavy small country.

The European Central Bank (ECB) also introduced negative interest rates, albeit for very different reasons.

The ECB wants to keep money out of its banks, not because it wants to reduce the value of the euro but because it wants money flowing round the eurozone countries to boost investment and spending.

Germany's Commerzbank also recently introduced negative interest rates for bigger corporate clients, but it said that was linked to the ECB's negative rates policy.