The Swiss National Bank (SNB) has set a minimum exchange rate target of SFr1.20 to the euro in a move aimed at the “substantial and sustained weakening” of the franc.
The central bank said it would “no longer tolerate” an exchange rate below that threshold and promised to take further measures if the economic outlook and deflationary risks required it.
“The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development,” the SNB said in a statement on Tuesday.
The SNB stated that it was prepared to buy foreign currency in unlimited quantities, adding that the franc was still high at SFr1.20 to the euro, but should continue to weaken over time.
The euro, which had been trading around SFr1.10 before the announcement, shot up to SFr1.20 afterwards.
The franc nearly touched parity with the euro on August 9. The Swiss currency has soared as investors used it as a safe haven from the euro zone's debt crisis and stock market turmoil.
swissinfo.ch and agencies