Using some of the strongest language with a central bank in the modern era, the SNB said it might buy other currencies in unlimited quantities and use all means within its capacity to hold to the target.
The move immediately knocked around 8% from the value of the franc, which has soared by another since the collapse of Lehman Brothers in 2008 as investors used it like a safe haven from the euro zone's debt crisis and stock exchange turmoil.
"The current massive overvaluation of the Swiss franc poses an acute threat towards the Swiss economy and carries the risk of a deflationary improvement, " the SNB said in a statement.
"The SNB will enforce this minimum rate using the utmost determination and is prepared to buy foreign foreign currency in unlimited quantities. "
The move prompted speculation which Japan might follow suit to cap the rising yen, that is also regarded as a safe haven and which could derail a recovery in the March earthquake and tsunami that tipped the country in to recession.
"Japan... will probably bring up the strong yen like a topic at the G7 meeting this weekend, " stated Koichi Haji, chief economist at the NLI research start in Tokyo. "It will try to seek understanding through G7 counterparts to intervene unilaterally. "
The SNB, that holds its quarterly monetary policy review on September 15, added that even for a price of 1. 20 to the euro, the franc was still high and really should continue to weaken over time.
"If the economic perspective and deflationary risks so require, the SNB will consider further measures, " it said.
The SNB has warned that economic growth -- still a proper 2. 3% in the second quarter -- is set to slow sharply within the coming months as the strong franc makes Swiss exports -- through luxury watches to drugs -- prohibitively expensive.
The franc nearly touched parity using the common currency on Aug. 9. It fell 8. 5% from the euro after the announcement to 1. 203 francs at 0821 GMT as well as dipped almost 8% against the dollar to 0. 8483.
"That was the single largest foreign currency move I have ever seen, " said World Very first chief economist Jeremy Cook. "This dwarfs moves seen publish Lehman Brothers, 7/7, and other major geo-political events previously decade. "
The European Central Bank said the SNB had made a decision of its own accord. Last month, ECB President Jean-Claude Trichet urged countries to not go it alone with currency interventions but rather take any action like a group.
MERCY
Analysts said the SNB should be able to defend the amount of 1. 20 francs per euro but its success depended on efforts to cope with the euro zone's debt problems.
"In the very probable event how the eurozone crisis worsens in the coming months, intervention might be very costly for the SNB, " said Rabobank older currency strategist Jane Foley.
"It will be the direction taken through the euro zone crisis that will determine how successful the SNB is going to be in protecting the Swiss franc from strength in the actual coming months. "
The SNB also set a formal exchange rate target in 1978 -- from the German Mark -- when the franc was soaring within the turbulent aftermath of the oil crisis.
"The last time they tried it was in the 1970s and it worked for the short term, but it came at an enormous cost and resulted in a huge burst of inflation, " said Simon Derrick, head of currency research at Bank of Ny Mellon.
"The move now should work in the temporary, but in the long term they are providing investors who're looking to exit the euro zone debt crisis by having an easy route. "
The SNB move came just after data showed Swiss inflation eased by a lot more than expected in August, dipping 0. 3% from a 30 days earlier, lower than a median forecast in a Reuters poll for any fall of 0. 1%.
The SNB cut an already a low interest rate rate target to nil on August 3. It is also boosting the quantity of liquidity in the banking system, and had threatened additional steps.
Those measures had temporarily helped the franc deteriorate, falling some 18% against the euro, but it jumped again last week as worries about the healthiness of the global economy intensified, increasing pressure on the SNB to do something again.
Expectations that the SNB could intervene had increased within recent days after top Swiss politicians and business groups expressed support for the central bank along with the idea of an exchange rate target.
Such political solidarity is as opposed to earlier this year when the central bank came under fire for running up an enormous loss in 2010 trying to keep a lid about the franc, prompting calls for SNB chairman Philipp Hildebrand in order to resign.
The difference now is that the strong currency is starting to throttle the economy. Exports have weakened and the travel and leisure sector has suffered; overnight hotel stays by foreign visitors fell 4% about the year in July.
Company profits have also begun in order to suffer, with some businesses extending working hours and others attempting to pay staff in euros in a bid to counteract the rampant currency.
Swiss speciality chemicals maker Clariant AG cut its 2011 sales target on Monday because of the franc, and the key Swiss banking sector has additionally seen profits squeezed.
To help ease some of the ill-effects of the strong currency, the Swiss government has proposed 870 million francs in aid to enhance unemployment insurance and other steps, including support for the actual hotels sector.
Rudolf Minsch, chief economist at business reception group Economiesuisse, told Reuters he backed the move:
"This is really a temporary measure that is absolutely needed to keep jobs in Switzerland and within the export industry because even at the value of 1. 20, the actual franc is strongly overvalued. ".