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Swiss central bank introduces negative interest rate

Zurich: Switzerland’s central bank on Thursday announced it was introducing negative interest rates, in a bid to stop the Swiss franc -- a safe haven currency -- from gaining further value.

The Swiss National Bank is imposing a rate of -0.25 per cent on certain bank deposits, with the aim of pushing the target range of a benchmark interest rate into negative territory.

The rate on so-called sight deposits, funds which can be accessed immediately, will come into force on January 22 and only apply to balances above a certain threshold.

The SNB said the aim was to take the three-month Libor rate, which Switzerland uses to determine interest rates on mortgages and savings accounts, into negative territory.

The target range for Libor -- officially the franc’s three-month London interbank offered rate -- is now between -0.75 per cent and 0.25 per cent, down from between 0.0 and 0.25 per cent.

Analysts have been expecting the bank to push rates into negative territory, which is designed to make it less attractive to hold Swiss franc investments.

The SNB reiterated its "utmost determination" to stop the Swiss currency gaining value and to keep to an exchange-rate floor of 1.20 francs to the euro, in a bid to protect the country’s vital export industry.

“Over the past few days, a number of factors have prompted increased demand for safe investments,” it said.

“The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.

“The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required.”