Swiss banks introduce negative interest rates

Switzerland is introducing a negative interest rate on the deposits it holds for lenders, its central bank said on Thursday, moving to hold down the value of the Swiss franc amid the turmoil in global currency markets.
The Swiss National Bank said in a statement from Zurich that it would begin charging banks 0.25 percent on bank deposits exceeding a certain threshold.
The bank acted as the crisis in Russia and plummeting oil prices have caused a sharp correction of global currencies and financial assets. Switzerland, known for its fiscal rectitude and banking secrecy, tends to attract capital inflows as money flees chaos elsewhere. But that puts pressure on the franc, threatening to make exporters less competitive and raising the risk that very low price pressures will tip into outright deflation.
“Over the past few days, a number of factors have prompted increased demand for safe investments,” the central bank said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”
In September 2011, with the eurozone’s sovereign debt crisis in full swing, the central bank announced a policy of capping the franc’s value at 1.2 francs per euro and said it was “prepared to buy foreign currency in unlimited quantities” to defend that level. It said on Thursday that it remained committed to enforcing that policy “with the utmost determination.”
The franc was trading at 1.2039 per euro on Thursday morning in Zurich.
In putting in place the negative rate on Jan. 22, in essence a tax on excess deposits, the Swiss monetary authority joins the European Central Bank, which in June introduced its own negative 0.1 percent deposit rate, and changed that to minus 0.2 percent in September.
Short-term interest rates, the main lever for monetary policy in normal times, have been cut to rock-bottom levels across the developed world, and nominal rates cannot go below zero. That has led central bankers to try unorthodox measures, including charging banks to hold deposits and a policy known as quantitative easing, the outright purchases of bonds on a large scale.
The Federal Reserve cut its target for Fed Funds, the rate that banks charge one another for overnight loans, to near zero on Dec. 16, 2008. At a news conference in Washington on Wednesday, Janet L. Yellen, the Fed chairwoman, said that she expected to raise that rate sometime next year, but that the bank’s policy board would be “patient.”
Forecasts that rates would rise from near zero have been proved wrong for six years running, as the global financial system remained fragile and growth failed to reach pre-crisis momentum.

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