SNB Goes to the Dark Side: Negative Rates

The Swiss National Bank (SNB) joins the negative rate movement, by charging to hold deposits.

Bullion.Directory precious metals analysis 18 December, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

The SNB thanks all those who voted “no” in last month’s gold referendum by issuing negative deposit rates.

The referendum would have forced the SNB to repatriate all of its gold, while having to purchase over 1,500 tons of the yellow metal within five years. Now, the Swiss, and foreign depositors, will now have to pay for their deposits.

The SNB implemented a negative 25 bps rate on sight deposit accounts, which they say is an important measure to keep the 1.20 EURCHF floor. This makes holding investments in Swiss francs unattractive, and the rate reduction is an attempt to drag the three-month LIBOR into negative territory.

The Swiss central bank’s unknown mandate is apparently forcing investors away from safe-haven investments.

An SNB statement said “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 also reaffirmed its commitment to the FX floor by stating it would purchase an unlimited amount of foreign currency to do so. Essentially, the SNB is stating it will further devalue the Swiss franc by printing more.

As expected, the majority “no” vote in the “Save Swiss Gold” has opened the doors for the SNB to do as it wishes to devalue the once highly regarded Swiss franc.

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