SNB Negative Rates Decision Underwhelms Amid Franc Haven Demand
(Bloomberg) — The Swiss National Bank may be finding that having a negative deposit rate is no guarantee investors will desert the franc.
Keen to prevent the currency from appreciating, policy makers today sought to deter overseas inflows by imposing a charge on commercial banks that leave funds with the SNB. Though the franc plunged 0.7 percent against the euro on the news, it reversed more than half the drop about five hours later. Now, Rabobank International estimates the Swiss currency will actually strengthen in the next three months.
Investors often buy the franc as a haven during times of turmoil. With crises in Russia and Greece, a Federal Reserve committed to keeping interest rates low and potentially currency-debasing sovereign-debt purchases by the European Central Bank stoking demand for safe assets, the SNB may find its task harder to achieve.
The franc’s move lower “is already slipping a little,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “There might be some flows coming in from Russia, supporting the franc. Such flows don’t care if there are zero or negative rates when they have seen the value of their assets drop by 20 to 30 percent in the past couple of days,” he said referring to a recent plunge in the ruble.
Switzerland’s currency depreciated 0.3 percent to 1.20479 against the euro at 2:03 p.m. London time after earlier reaching 1.20974, the weakest level since Oct. 10. The 0.7 percent intraday decline was the most since May 2013, according to data compiled by Bloomberg.
ECB Meeting
The 0.25 percent charge will apply as of Jan. 22, the Zurich-based SNB said in a statement today. The ECB, which already has a negative deposit rate and is considering extending its own stimulus measures to boost inflation that’s dropped toward zero, holds its first policy decision of 2015 that day.
The SNB imposed a trading cap of 1.20 francs per euro in September 2011 to halt its appreciation as the euro-area sovereign-debt crisis spurred investors to buy the Swiss currency as a haven.
The central bank said today that “a number of factors have prompted increased demand for safe investments” in the past few days and today’s decision would make it “less attractive to hold Swiss-franc investments, and thereby supports the minimum exchange rate” of 1.20 per euro.
“If the euro comes under further downside pressure in the months ahead, euro-franc is likely to stay under pressure,” Jane Foley, senior foreign-exchange strategist at Rabobank in London, wrote in a client note today. The franc will probably advance to 1.20 per euro in three months, compared with a previous prediction of 1.21, Foley wrote.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord, Keith Jenkins
