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Swiss franc hits 2-year low, SNB introduces negative interest rate of 0.25%

Swiss franc hits 2-year low, SNB introduces negative interest rate of 0.25%

GENEVA: The Swiss franc hit its lowest against the dollar in more than two years, and touched a two-month trough against the euro, after the Swiss National Bank said it would introduce negative interest rates.

The SNB said it would impose an interest rate of -0.25 percent on sight deposit account balances of over 10 million Swiss francs as it seeks to discourage safe-haven buying of francs.

Global markets have been rocked recently by the unfolding financial crisis in Russia and the continued slide in oil prices, fueling demand for safety.

The Swiss franc weakened to as much as 1.2098 francs per euro EURCHF= on trading platform EBS, pulling away from the SNB’s three-year old cap of 1.20 francs per euro.

Against the dollar, the franc fell to 0.9848 francs CHF=, a level not seen since August 2012.

Geoffrey Yu, a currency strategist at UBS in London, said the SNB’s move was not a total surprise.

“Over the past few days they (the SNB) have seen increased bids for Swiss francs, and this gives them a bit more flexibility. In the short term it gives them some breathing space,” Yu said.

“If you hold Swiss francs right now you do have to bear a cost. New buyers will be forced to think twice.”

The euro fell below $1.23 EUR= after the SNB’s move, a sign investors may be calculating that the SNB will want to diversify some of its huge euro-denominated currency reserves amassed over the last few years into dollars, Yu said.

The Fed said it would take a “patient” approach in deciding when to bump borrowing costs higher, guidance which it said is consistent with its previous statement that rates will be low “for a considerable time.”

“The markets have had some relief as the Fed is moving forward as planned, but not too fast, in raising rates,” said Takako Masai, the head of market research at Shinsei Bank.

The dollar index .DXY =USD was flat at 89.131 after having risen 1.0 percent on Wednesday, coming close to a near six-year high of 89.550 touched 10 days ago.

The ruble rose on Thursday, buoyed by state action and indications Russia’s top oil producer can meet a debt repayment, before President Vladimir Putin’s end-of-year news conference, due to begin at 0900 GMT (4 a.m. EST).