- Swiss National Bank
Like a bolt from the blue, the Swiss National Bank decided to discontinue keeping its three-year-old cap of 1.20 franc per Euro and slashed its deposit interest rate to –0.75%. The decision came just one week before the European Central Bank board members meet to discuss government bonds purchases, which may increase pressure on the Swiss Franc versus the Euro. The SNB spent billions defending its minimum exchange rate but gave up trying to limit the Franc's appreciation in light of outright deflation and prospects if further weakening of the single currency. Following the announcement the Swiss Franc skyrocketed as much as 40% to 84.17 centimes per Euro, the highest level on record. However, further cuts in the interest rate makes the Swiss Franc investment less appealing and thus "will mitigate the effects of the decision to discontinue the minimum exchange rate", the SNB Governor Thomas Jordan said. What is interesting is the fact that only one month ago, when the central bank introduced a negative deposit rate, the SNB President Thomas Jordan reiterated the pledge to defend the cap with "utmost determination". However, the SNB came to a conclusion that keeping the minimum exchange rate for the nation's currency against the Euro "is no longer justified". This is due to the fact that monetary policy divergence of the major currency areas is likely to become even more pronounced, pushing the Euro lower versus the Greenback, and this in turn has triggered declines in the Franc against the US Dollar.
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