Swiss National Bank places negative deposit rates, CHF falls

The Swiss National Bank (SNB) introduced on Thursday a negative deposit rate of -0.25% in order to keep the currency ceiling of 1.20 francs per euro, after the exchange policy got under pressure from safe-haven demand.

The recent market turbulence has been inducing heavy demand for assets on haven Switzerland, which resulted in upward pressure for the Swiss franc and tested the euro ceiling again.

The euro has also been weakening for a while now on bets the European Central Bank will commence a full-scale quantitative easing program at the start of next year.

“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’s statement said.

The central bank will now charge a 0.25% tax on sight deposit account balances.

The decision for negative deposit rates came as the SNB showed reluctance in buying big amounts of Eurozone bonds again, which notably drained the bank’s reserves.

The Swiss franc reacted quickly to the central bank’s announcement, and fell 0.55% against the euro to 1.2071.