Swiss franc falls on rate cut
The Swiss franc's 'safe haven' status has been further undermined following the Swiss central bank's latest interest rate cut last night, which promptly led falls for the currency against the dollar and the euro.
The Swiss National Bank’s Governing Board in Zurich, headed by Jean-Pierre Roth, lowered the three-month Libor target by 50 basis points to to 0.5%, as the Swiss economy faces a recession expected to be the worst since 1982.
The rate for borrowing Swiss francs for three months in London was at 1.14% yesterday, according to Bloomberg. It fell to 0.86% today.
The dollar traded up at 1.1920 francs compared with 1.1905 francs just before the rate decision, and the euro rose to 1.5640 francs from 1.5625 francs. Over the last year, the Swiss franc has failed to perform well against rival currencies in the way it did during previous recessions.
The SNB also halved the one- week rate it uses to steer three-month borrowing costs to 0.05% from 0.1%.
The Swiss economy will shrink between 0.5% and 1% next year, the SNB forecast this morning. A contraction of 1% would be the worst since 1982 and 0.5% would be the biggest decline in gross domestic product since 1991.
The news of Switzerland's weakened economy could make the region less appealing to wealthy non-domestic residents, who are less inclined to live in countries like the UK following a tightening in their tax regimes.
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