18 Dec 2014
SNB lowers 3m Libor to impose negative interest rates on some deposits - ING
FXStreet (Barcelona) - ING’s Julien Manceaux, notes that the SNB surprised the markets by lowering its main target for the 3month Libor in CHF to -0.75% - +0.25%, imposing negative interest rates on some deposits.
Key Quotes
“In a surprising move, the Swiss National Bank decided this morning to lower its main target for the 3 month Libor in CHF from 0.00%-0.25% to -0.75% - +0.25%, imposing negative interest rates on some deposits. One week after its main monetary policy meeting, the move came as a surprise.“
“Last week, if further measures to avoid a CHF appreciation were certainly becoming an option, like negative interest rates, it looked as if President Jordan clearly left the possibility aside when he said that “with interest rates at zero, the minimum exchange rate is the key instrument to avoid an undesirable tightening of monetary conditions”.”
“In one week, most downside risks for the EUR/CHF exchange rate materialized, most notably with capital inflows flooding the Rouble debacle. The negative exchange rate will take effect on January 22 but will hit only sight deposit account balances of more than 10 Mio CHF. This is to ensure that Swiss citizens will remain largely untouched by the measure.”
“This negative interest rate therefore could be seen as a tax on foreign deposits in CHF, with the advantage that it will have an effect on the yield curve.”
“Indeed, short term spreads with German interest rates fell in recent months, adding pressure on the EUR/CHF. Today’s measure will certainly reinforce the 1.20 floor under the EUR/CHF rate, avoiding that the SNB is pushed into another round of heavy FX intervention.”
“It was indeed widely believed that further measures would be taken to avoid another surge in the SNB balance sheet. Now, that negative interest rates are in place, the SNB ammunition stock has reduced significantly.”
Key Quotes
“In a surprising move, the Swiss National Bank decided this morning to lower its main target for the 3 month Libor in CHF from 0.00%-0.25% to -0.75% - +0.25%, imposing negative interest rates on some deposits. One week after its main monetary policy meeting, the move came as a surprise.“
“Last week, if further measures to avoid a CHF appreciation were certainly becoming an option, like negative interest rates, it looked as if President Jordan clearly left the possibility aside when he said that “with interest rates at zero, the minimum exchange rate is the key instrument to avoid an undesirable tightening of monetary conditions”.”
“In one week, most downside risks for the EUR/CHF exchange rate materialized, most notably with capital inflows flooding the Rouble debacle. The negative exchange rate will take effect on January 22 but will hit only sight deposit account balances of more than 10 Mio CHF. This is to ensure that Swiss citizens will remain largely untouched by the measure.”
“This negative interest rate therefore could be seen as a tax on foreign deposits in CHF, with the advantage that it will have an effect on the yield curve.”
“Indeed, short term spreads with German interest rates fell in recent months, adding pressure on the EUR/CHF. Today’s measure will certainly reinforce the 1.20 floor under the EUR/CHF rate, avoiding that the SNB is pushed into another round of heavy FX intervention.”
“It was indeed widely believed that further measures would be taken to avoid another surge in the SNB balance sheet. Now, that negative interest rates are in place, the SNB ammunition stock has reduced significantly.”