IMF Advises SNB to Apply Negative Rates Instead of FX Intervention

Switzerland’s central bank should adjust its policy to favor negative interest rates rather than currency interventions as it seeks to weaken the Swiss franc’s appeal, the International Monetary Fund said on Monday.

The Swiss National Bank’s twin policy of negative rates and intervention has helped reduce deflationary pressures in the country and to weather last year’s surge in the franc, the IMF said in its annual assessment of the Swiss economy.

But the central bank should consider deeper negative rates or cutting the existing threshold for deposits now exempt from negative interest in order to make the franc even less attractive as a safe haven currency, said Rachel van Elkan, IMF Mission Chief.

“There’s room to go down further,” van Elkan told a press conference in Bern. “If there are sustained small-scale inflows, that is better addressed by interest rates than foreign exchange interventions.”

The SNB currently charges a rate of -0.75 percent on deposits it holds for commercial banks. The policy has been criticized by Swiss politicians and bankers and has also made life tough for pension funds and insurers by reducing returns on their investments.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza