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Swiss Bank Imposes Negative Int. Rates 12/18 06:34

   BERN, Switzerland (AP) -- Following the fallout of the slide in the Russian 
ruble, Switzerland sought Thursday to prevent the Swiss franc from breaching 
upper limits imposed on the currency by introducing negative interest rates on 
commercial bank deposits.

   The move forces commercial banks to pay to deposit their francs with the 
Swiss National Bank --- usually they get a small interest rate for doing so.

   It's a step that the European Central Bank has introduced, too, though its 
motivation is to encourage banks to lend to households and businesses in order 
to shore up the economic recovery in the 18-country eurozone.

   For the Swiss authorities, the desire is different. It's to prevent the 
Swiss franc from appreciating too much. That can hurt the country's exports and 
weigh on the economy.

   As a result, the SNB introduced a rate of minus 0.25 percent on sight 
deposit account balances of more than 10 million Swiss francs ($10.4 million).

   The SNB said demand for safe investments --- the Swiss franc is widely 
considered one of the main safe haven assets in the world --- has increased 
over the past few days in light of the collapse of the Russian ruble, which has 
lost almost half its value since January. On Tuesday, at one stage, it was down 
20 percent.

   "Rapidly mounting uncertainty on the financial markets has substantially 
increased demand for safe investments," SNB President Thomas Jordan told a news 
conference in Zurich. "The worsening of the crisis in Russia was a major 
contributory factor in this development."

   The SNB, headquartered in the Swiss capital Bern, emphasized that it is also 
prepared to purchase foreign currency in unlimited quantities and to take 
further measures, if required.

   Since 2011, it has set the minimum exchange rate of the euro at 1.20 Swiss 
francs, helping sharply raise the value of major currencies like the dollar 
against the franc. But pressure has been rising on the Swiss franc, which has 
strengthened against the euro amid conflicts in Ukraine and the Middle East and 
the struggling eurozone economy.

   The Swiss franc rose to within 1 percent of the cap this week, its strongest 
level in more than two years.

   "The minimum exchange rate is still the key instrument to avoid an 
undesirable tightening of monetary conditions and to maintain price," Jordan 
said.


(KA)


 
 
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