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SNB's Schlegel sees scope to cut negative rates further

A waitress presents a plate with various Swiss Franc coins and notes in this picture illustration in a restaurant in Zurich, Switzerland, May 21, 2013. REUTERS/Michael Buholzer/Illustration/File Photo

ZURICH (Reuters) - The Swiss National Bank (SNB) can maintain its negative interest rate policy long term and has scope to take rates even deeper into negative territory, a member of the central bank’s expanded governing board said on Tuesday.

The SNB remains committed to the policy, charging one of the world’s lowest interest rates, despite increasing criticism of the measure brought in to ward off interest in the Swiss franc, Alternate Member of the Governing Board Martin Schegel told an event in Zurich.

The SNB last month raised the exemption threshold before the negative rate of -0.75% it applies to commercial banks who park money with it overnight. Some banks are now passing on the charge to their customers.

“Our latest decision to increase the exemption threshold gives us leeway to keep negative interest rates for a long time or to lower them,” Schlegel said.

In response to a question if the bank would consider lowering rates in response to monetary easing by the U.S. Federal Reserve and the European Central Bank, Schlegel said the SNB would examine the global situation and react accordingly.

“We hear a lot criticism about negative interest rates. We think they are essential,” Schlegel said, adding they were “central” to keeping the franc unattractive.

The negative rates, which have been in place for almost five years, did have negative side effects like increasing house prices in Switzerland, he said.

But there was no alternative for Switzerland as a small open economy.

“If the SNB stopped negative rates and went to zero, this would certainly not be good for Switzerland,” he said. “Then we would have a massively strong currency and the yield curve would become inverse or more flat, which is not good for the banking system.”

Reporting by John Revill; Editing by Michael Shields and Brenna Hughes Neghaiwi