On 22 September 2022, the Swiss National Bank (SNB) bumped its policy interest rate up by 0.75 percentage points to 0.5%. The move pushed the Swiss Franc down by around 2% against the euro.
The recent hike brings Europe’s experiment with negative interest rates to a close. Only Japan now has a negative rate.
The SNB rate hike follows a 0.75 percentage point hike by the ECB on 14 September 2022 and one of the same amount by the US Fed on 21 September 2022.
The weakening of the CHF against the euro and other currencies following the hike suggests the market might have been expecting a bigger move by the SNB.
Over the last decade, negative rates spread around the world. Following in Japan’s footsteps, the ECB took its deposit facility rate negative in 2014. Then Switzerland’s rate went negative in 2015 when the SNB took the rate from zero to -0.75%. Other central banks venturing into negative rate territory include the Swedish and Danish central banks, and more recently in Norway’s.
In 2015, Switzerland’s media dubbed the move to negative rates as the “Frankenshock” and the Bild newspaper in Germany gave ECB head Mario Draghi the nickname “Count Draghila” for sucking bank accounts dry – some worried that their bank balances were going to be eroded by negative rates, something that only affected customers with large balances in Switzerland. Others expected large withdrawals of cash to dodge the cost of negative rates, however there is little evidence of this happening. The number of large notes in circulation in Switzerland remained fairly stable.
If and when negative rates return to Europe remains an open question. But with inflation stubbornly high and aggressive rate hikes coming from the US Fed they are unlikely to be seen again soon. In the meantime, eyes will be on the Bank of Japan to see if it makes a move away from negative rates as its currency weakens to levels last seen in 1998 – the exchange rate exceeded 145 yen per USD this morning. As recently as December 2020 it was 103.
SNB rates (in English)