The Swiss National Bank made an unexpected announcement today that it has cut interest rates in order to halt a further rise in the Swiss franc, which has been soaring recently due to its safe haven status.
The SNB said it will narrow the interest band between 0.00 to 0.25 percent and will try to keep the rate as close to zero as possible. To being the process of weakening the currency, it will significantly increase the supply of francs to the money market over the next few days.
With low-debt Switzerland seen as a safe haven from an escalating euro zone debt crisis and fears of a U.S. rating downgrade, the franc has surged 18 percent against the euro and 22 percent against the dollar in recent months.
The SNB is the first central bank to cut rates since the global economic outlook has been worsening and expectations for higher rates from the European Central Bank and U.S. Federal Reserve have most likely been postponed until next year or when sign of growth pick up.
Some analysts believe it will be difficult for the SNB to keep the Swiss franc down during these times of crisis and the ongoing issues in the debt-ridden peripheral economies of the Euro zone.
However, Swiss exporters have welcomed the SNB’s move, citing that their business has suffered with the strong franc.