Geneva: In a shock announcement Thursday, Switzerland`s central bank said it was ending a three-year bid to artificially hold down the value of the Swiss franc against the euro, in a move that immediately sent the safe haven currency soaring.
"The Swiss National Bank is discontinuing the minimum exchange rate of 1.20 francs per euro," the bank said in a statement.
Following the announcement, the Swiss franc strengthened 29 percent to 0.8517 against the euro.
SNB had since September 2011 been defending the exchange rate floor in a bid to protect the country`s vital export industry, including by buying massive quantities of foreign currencies.
The floor was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. The Russian ruble crisis has also recently put pressure on the franc.
"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," the bank said.
"This exceptional and temporary measure protected the Swiss economy from serious harm," it said.
"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," the bank added.
The central bank also announced Thursday that it further slashing its interest rate by 0.5 percentage points on certain bank deposits to negative 0.75 percent.
The target range for Libor -- the franc`s three-month London interbank offered rate -- is now between -1.25 and -0.25 percent, down from between -0.75 and 0.25 percent.
