Franc Tumbles as SNB Subjects More Deposits to Negative Rates

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Switzerland’s franc dropped the most in more than two months against the euro after the nation’s central bank said it will expand the number of sight-deposit accounts that are subject to negative interest rates.

The franc weakened against all 16 of its major peers after the decision, which makes holding the currency in those accounts more unattractive. The Swiss National Bank announced the measures, which follow criticism that public institutions were being shielded from the charge, in a statement Wednesday. UBS Group AG described the move as a “very marginal” step.

Even after the decline, the franc is the best-performing major currency this year following a surge in January, when the SNB removed a limit on its appreciation. Investors have been drawn to it as they seek a haven from political turmoil in Greece and the European Central Bank’s quantitative-easing policy, which helped debase the euro.

“The SNB is clearly attempting to make holding the franc less desirable,” said Peter Rosenstreich, head of market strategy at Swissquote Bank SA in Gland, Switzerland. “I don’t think these moves will reverse the franc strength. A small haircut pales in comparison to depreciation in the euro or potentially worse if Greece defaults.”

Switzerland’s currency weakened 0.9 percent to 1.03495 per euro at 3:50 p.m. London time, the biggest decline since Feb. 17. It tumbled 1 percent to 96.45 centimes per U.S. dollar.

Stand Ready

“Today’s decision incrementally increases the total balance of sight deposits subject to a negative rate,” Geoffrey Yu, a senior currency strategist at UBS in London, wrote in an e-mailed report. “Overall, in terms of scale, today’s move is a very marginal easing step, but the SNB clearly displayed ongoing vigilance regarding inflows, appreciation pressure on the franc, and ultimately stand ready to act without notice should conditions deteriorate.”

The move may increase the total balance sheet of sight deposits subject to a negative rate to 155 billion francs, or about 35 percent of deposits, Yu wrote. UBS is Switzerland’s biggest bank.

The SNB roiled financial markets and sent the Swiss currency to a record high with its surprise decision to remove the franc’s 1.20 per euro cap. It imposed a negative deposit rate of 75 basis points at the same time to reduce the allure of holding franc-denominated assets.

That fee didn’t apply to some sight deposit accounts at the SNB held by public entities, leading to complaints by some lawmakers about unequal treatment.

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