Switzerland Has So Much Money It Pays Consumers For Bank Loans

The Swiss National Bank has imposed a negative interest rate of -0.25% after a sudden money influx earlier this week.

MOSCOW, December 18 (Sputnik) — The Swiss monetary regulator has trimmed its deposit rate for commercial banks to negative amid an unprecedented influx of money in recent days, causing an undesirable franc appreciation. 

Switzerland’s central bank (SNB) surprised the markets by introducing an unconventional monetary policy decision, having cut its interest rate to —0.25%, starting January 22. The measure will weaken the franc by triggering money losses in financial institutions holding the currency.

The Swiss franc is one of the world’s five reserve currencies and is viewed by investors as a safe haven in times of financial turbulence. Switzerland’s monetary authorities are committed to ensure that the franc’s value does not exceed the FX rate of 1.2 CHF to 1 EUR, as a stronger franc would damage the Eurozone’s fragile recovery by creating an unnecessary competition in investment assets.

However, Switzerland has experienced a sudden influx of money in recent days, leading to the franc’s sudden strengthening. The investment inflow was possibly triggered by the ruble crisis, prompting an acceleration of money outflow from Russia. Many Russians might be trying to shelter their money in Switzerland.

Timing of #SNB is pretty interesting… just a week after the SNB's last policy meeting — #rouble trouble perhaps?

— Francine Lacqua (@flacqua) 18 декабря 2014

This situation caused the franc to sharply strengthen from 1.2009 against the euro to 1.2093 overnight on December 18. After the SNB announcement the franc fell 0.5% to 1.2075 per euro.

The negative SNB interest rate will prompt a sell-off in franc-denominated assets, effectively driving the franc’s FX rate down early next year.