The franc fell to a three-month low against the euro on Thursday after a central bank move to halt deflation led to its biggest one-day drop against the currency.

The euro shot up over three per cent from SFr1.48 to SFr1.53 on news that the Swiss National Bank had cut its base rate to a record low of 0.25 per cent.

The target range for the three-month Libor (London Interbank Offered Rate) was lowered by 25 basis points to 0 – 0.75 per cent. The SNB said it would do all it could to bring the rate down to the lower end of the new range, approximately 0.25 per cent.

It said it would also act to prevent the franc appreciating further against the euro, by increasing liquidity. The measures include buying Swiss franc bonds issued by private sector borrowers and purchasing foreign currency on foreign exchange markets.

The steps aim to support economic activity and limit the risk of deflation over the next three years, cushioning the effects of the current economic and financial crisis.

The SNB has cut interest rates repeatedly in the past few months. During the last quarter of 2008 the Libor target range was reduced by 225 basis points. The previous record low was between March 2003 and June 2004, when it stood at 0.375 per cent.

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