ANKARA
The Swiss National Bank has abandoned its fixed minimum exchange rate policy for the franc against the euro.
The move sent foreign exchange markets into a spin, with the euro expected to drop sharply on the news.
In a statement from the central bank on Thursday, the regulator explained that the economic context did not justify keeping the euro from falling below Sfr. 1.20.
The statement read: "The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets.
"This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate."
"The economy was able to take advantage of this phase to adjust to the new situation," it added.
With the policy change, the central bank is also reducing key interest rates.
The bank is reducing the interest rate on sight deposit account balances that exceed a given exemption threshold by 0.5 percentage points, to −0.75 percent.
"The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions," the central bank said.
