Swiss rate cut to curb rising Swiss Franc – but is this really a surprise?

3rd August 2011

The Swiss National Bank reduced its interest rate target band on Wednesday, saying it would aim for a three-month Libor interbank rate of "as close to zero as possible" from an already rock-bottom 0.25%, says the report.

It also plans to "very significantly increase" the supply of francs to the money market over the next few days as the ongoinng Euro crisis continues to weigh on markets.

But was the cut really a surprise, ask commenters?

Wilson comments on the report: "Was it really such a "surprise rate cut"? The Swiss franc was in the 1.30s to the £ a week ago and rose to 1.24 at the close last night. Surely such a cut was inevitable to prevent the Swiss franc becoming overvalued through becoming a currency haven?"

Earlier this week, Mindful Money economist blogger Shaun Richards commented on the Swiss Franc powering forwards as it appeared unstoppable.

He said on his blog on Tuesday: "…Returning to the Swiss Franc its record against the pound was revised to 1.2703 as it rallied by 1.6% and the record high against the US dollar was moved to 77.31 centimes which represents a rise of 16% this year. The move against the Euro over the weekend and including Monday was quite extraordinary as the European Central Bank's reference rate had been 1.1418 so at the new record high the Swiss Franc had rallied by 3.4%! This is an extraordinary move and my suggestion as to the explanation I had already put on my twitter feed late on Friday."

Drf comments on the blog: "So long as the USA, UK and EU continue on the path of deliberate currency debasement as the quick-fix solution to their profligacy it is inevitable that the Swiss Franc will continue to escalate in value against all debased currencies…

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