- Switzerland's central bank said Thursday it was dropping Libor as a reference in setting interest rates in another blow to the scandal-plagued benchmark.
The Swiss National Bank, following a regular monetary policy meeting, said it was maintaining its expansionary stance aimed at stabilising price developments and supporting economic activity, a key element of which is forcing commercial banks to pay to keep deposits at the central bank.
In a change, the SNB said it was introducing its own policy rate in place of using the three-month Libor rate as a reference point in making its decisions.
The -0.75 percent policy rate is unchanged and corresponds to the rate on commercial bank sight deposits at the SNB.
"The reason for introducing the SNB policy rate is that the future of the Libor is not guaranteed," the SNB said in a statement.
Given that the SNB has a three-year horizon in its forecasts and the UK's Financial Conduct Authority will only ensure that the Libor is maintained through to the end of 2021, the central bank was forced to act.
Libor is a global benchmark interest rate that underpins the terms of $500 trillion of contracts from mortgages to the cost of corporate lending, but has been discredited after a number of banks were accused in 2012 by UK and US regulators of manipulating the rate.
Libor, the London Interbank Offered Rate, is supposed to represent what banks expect to pay if they borrow from each other. But US and British authorities have said traders and banks falsely inflated or lowered the rate to their advantage.
Regulators and markets have had difficulty developing a replacement to Libor.
Another reason why the SNB maintains the negative rate is to deter the use of the Swiss franc as a safe haven currency. When investors pile into the franc, driving up its price, the Swiss economy can be hurt as its exports become relatively expensive.
The SNB said it "will remain active in the foreign exchange market as necessary".
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