Swiss miss?

January 15, 2015 08:25 AM
Swiss removes euro peg

Go big or go home! The Swiss franc explodes and the rupee roars as central banks make dramatic moves to fight off deflationary pressures.

Switzerland and India's central banks shocked markets by cutting interest rates in response to falling prices and slower economic growth. Even more shocking was the fact that the Swiss central bank removed its peg and price cap that limited how much the euro could fall against the Swiss franc, which is known as the minimum exchange rate policy. The old policy was to intervene in the market to make sure that the Euro rrency did not fall below 1.20 Swiss francs to keep investors from parking money there for safe haven, lowering the country's export prospects by having a strong currency.

Dow Jones reported that The Swiss National Bank also raised the fees it charges banks to deposit money. It said it would lower its three-month Libor target range to between minus 1.25% and minus 0.25% from between minus 0.75% and 0.25%, effective immediately. The central bank said it has now concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified. The move by the Swiss National Bank is going to raise the pressure on the European Central Bank to do something dramatic as far as quantitative easing to keep up with the Swiss.

India, normally an inflation hot spot also shocked markets, first with an unscheduled interest 0.25 basis point interest rate cut bringing their interest rate down to 7.75 percent. According to Dow Jones, "Central bank Gov. Raghuram Rajan said he decided to lower rates, thanks to signs that India is winning its long battle with inflation in recent months as oil and food prices have slid."

Of course, they may have to fight a new battle of slowing economic growth as reflected by falling prices. Dow jones says that "India's economic slowdown as well as falling oil prices have helped bring India's consumer-price index inflation rate down below 6% in recent months." Some countries would love that inflation rate right now.


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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.