Swiss bank opts for negative deposit rate

The central bank of Switzerland has introduced a negative deposit rate to help control its rising currency rate.

Economic uncertainty has meant there has been growing demand from across the global markets to put assets into the relatively safe haven of the Swiss franc.

Political instability in Russia and the recent drop in oil prices have also caused a dramatic shift in interest in Swiss franc bonds over the past week.

However, this rise in demand for such investments means it has put pressure on the country’s exchange rate and caused domestic problems for the country’s residents.

In 2011, the Swiss franc and the euro almost reached parity, but the Swiss government stepped in and increased the number of francs in circulation to purchase Eurozone bonds.

It is hoped the use of negative interest rates by the Swiss National Bank (SNB) will make it less appealing to hold on to Swiss franc assets and this will alleviate pressure on the currency.

The changes mean the rate will now implement a charge of 0.25 per cent tax on sight deposit account balances held at the central bank – starting from January 22nd.

A statement from the central bank said: “The SNB reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro, and will continue to enforce it with the utmost determination. It remains the key instrument to avoid an undesirable tightening of monetary conditions resulting from a Swiss franc appreciation.”