Swiss take steps to lower franc

AP News
Posted: Aug 03, 2011 8:08 AM
Swiss take steps to lower franc

Switzerland's central bank is taking steps to lower the franc's exchange rate, saying the currency is "massively overvalued" and threatening the Swiss economy.

The Swiss National Bank said Wednesday it would lower its target range for interest rates on lending between banks to 0.0-0.25 percent from 0.0-0.75 percent.

Lowering interest rates can help reduce a currency's value against other currencies by lessening demand for investments and assets in that currency.

The bank also said it would "very significantly" increase liquidity into the Swiss franc money market.

The steps were aimed at pulling the franc lower against the dollar and the euro. Switzerland's currency, along with gold, has risen sharply because it's considered a safe haven from the debt and economic woes in Europe and America.

A stronger currency can hurt a country's economy by making it harder to export goods.

The bank said in a strongly-worded statement that "the outlook for the Swiss economy has deteriorated substantially" because of the strong franc.

Following the announcement, the euro spiked 2 percent to 1.1080 francs, while the dollar traded 1.4 percent higher at 0.7763 franc.

"Although today's actions will weaken the fundamental attractiveness of the franc, the SNB will be well aware that it is swimming against the tide and that without a solution to the eurozone sovereign debt crisis it will be difficult to convince investors to dump the franc," said Jane Foley, senior currency strategist at Rabobank International.