As negative as it gets

Swiss Franc Tanks as SNB Curtails Negative Rates Exemptions

The Swiss National Bank continues creatively using the tools at its disposal to alleviate the upward pressure on the currency

The Swiss currency is plunging across the board this London afternoon as the Swiss National Bank (SNB) announced on Wednesday that after completing a review, the list of exemptions from negative deposit rates has been considerably reduced.

The central bank announced that negative interest rates will now also apply to the sight deposit accounts held at the SNB by enterprises associated with the Confederation, including the country’s pension fund PUBLICA.

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The current negative deposit rate totals -0.75%, with the central bank’s official cash rate at -1.25%.

The affected parties will get a minimum exemption threshold of CHF 10 million, for which the negative interest rates are waived.

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Increased speculation by currency traders about the value of the Swiss franc was the main reason for the introduction of the exchange rate floor by the Swiss National Bank in September 2011.

Facing pressure to buy an ever-increasing amount of foreign currency the central bank was forced to abandon the peg just before the European Central Bank unveiled its massive €1 trillion quantitative easing program.

The resulting disorderly move in the Swiss currency has wiped out more than $1 billion from the capital base of foreign exchange brokers worldwide. Some major companies in the industry have had to resort to additional financing as they faced pressure from materially different market conditions and regulatory capital requirements.

The Swiss franc is currently trading just under 1% lower against the U.S. dollar and 0.9% lower against the euro.

The next monetary policy meeting of the Swiss National Bank is on the 18th of June.

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