SNB lowers interest rate to -0.75% ends minimum exchange rate

The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20

per euro. At the same time, it is lowering the interest rate on sight deposit account balances

that exceed a given exemption threshold by 0.5 percentage points, to −0.75%. It is moving the

target range for the three-month Libor further into negative territory, to between –1.25% and

−0.25%, from the current range of between −0.75% and 0.25%.

The minimum exchange rate was introduced during a period of exceptional overvaluation of

the Swiss franc and an extremely high level of uncertainty on the financial markets. This

exceptional and temporary measure protected the Swiss economy from serious harm. While

the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction

of the minimum exchange rate. The economy was able to take advantage of this phase to

adjust to the new situation.

Recently, divergences between the monetary policies of the major currency areas have

increased significantly – a trend that is likely to become even more pronounced. The euro has

depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to

weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and

maintaining the minimum exchange rate for the Swiss franc against the euro is no longer

justified.

The SNB is lowering interest rates significantly to ensure that the discontinuation of the

minimum exchange rate does not lead to an inappropriate tightening of monetary conditions.

The SNB will continue to take account of the exchange rate situation in formulating its

monetary policy in future. If necessary, it will therefore remain active in the foreign exchange

market to influence monetary conditions.