Switzerland ends euro minimum exchange rate, cuts interest rate

Friday, 16 January 2015 00:00 - - {{hitsCtrl.values.hits}}

GENEVA: In a shock announcement on Thursday (15 January), Switzerland’s Central Bank said it was ending a three-year bid to artificially hold down the value of the Swiss franc against the euro, in a move that immediately sent the safe haven currency soaring. “The Swiss National Bank is discontinuing the minimum exchange rate of 1.20 francs per euro,” the bank said in a statement. Following the announcement, the Swiss franc strengthened 29% to 0.8517 against the euro. SNB had since September 2011 been defending the exchange rate floor in a bid to protect the country’s vital export industry, including by buying massive quantities of foreign currencies. The floor was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. The Russian rouble crisis has also recently put pressure on the franc. “The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets,” the bank said. “This exceptional and temporary measure protected the Swiss economy from serious harm,” it said. “While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation,” the bank added. The Central Bank also announced Thursday that it further slashing its interest rate by 0.5 percentage points on certain bank deposits to negative 0.75%. The target range for Libor – the franc’s three-month London interbank offered rate – is now between -1.25 and -0.25%, down from between -0.75 and 0.25%.

Currency market furore wipes $100 b off Swiss stocks

LONDON, Jan 15 (Reuters) - Frantic foreign exchange trading after the Swiss National Bank scrapped its euro cap on the franc took $100 billion off the value of Switzerland’s blue-chips on Thursday, putting them on track for their biggest one-day fall in at least 25 years. The Swiss blue-chip SMI index slumped more than 8.6 percent, with stocks including Swatch, luxury-goods firm Richemont and cement-maker Holcim down between 12 and 14 percent in what some traders described as “carnage”. Swiss-listed shares of offshore drilling contractor Transocean slumped to an all-time low. Lenders Julius Baer and UBS were down 10 percent. The SNB’s shock decision to discontinue the cap against the euro it introduced on Sept. 6, 2011 to fight recession and deflation pressures sent the Swiss franc soaring by almost 30 percent, a move that rippled through global markets and which was seen hurting Swiss firms’ exporting power. Swatch Chief Executive Nick Hayek called the decision “a tsunami” for Switzerland’s economy. “It’s carnage,” Central Markets Investment Management’s head of trading, Darren Courtney-Cook, said. “I’m a seller of Europe here.” Stock markets fell across the region. The pan-European FTSEurofirst 300 index was down 1.3 percent. “Equity markets have been shaken out by the Swiss move,” IG market analyst, David Madden, said. “Markets are still struggling to puzzle out the full implications, but the sudden drop in equity markets as well in the FX sphere shows that the move caught everyone off guard.”