ZURICH — Switzerland’s central bank on Thursday said it would introduce negative interest rates next year, a measure designed to cool the strength of the Swiss franc and ward off deflation.

Beginning Jan. 22, the Swiss National Bank will charge banks 0.25% to deposit overnight funds with it, the central bank said in a statement. The move will push the three-month Swiss franc Libor rate, currently in a range between 0.0% and 0.25%, into negative territory.

The SNB’s decision comes after months of pressure on the franc CHFEUR, -0.00 , which has strengthened to near 1.20 a euro, a level the central bank has pledged for the past three years to defend. A strong franc, which has benefited from safe-haven buying and weakness in the eurozone economies, raises the risk of imported deflation and creates headwinds for the country’s exporters, many of whom depend on the European Union as a key market.

The franc’s appreciation against the euro in recent days had forced the central bank to intervene in the currency markets, SNB President Thomas Jordan said at a news conference, although he declined to say how much currency the bank bought. The SNB “can push the negative rate even lower” if needed he said and reiterated the bank’s commitment to defend the 1.20-franc-to-euro level with what whatever measures needed.

The Swiss franc immediately dropped on the news, falling to 1.2098 a euro, its lowest level since October. The decision, made before the stock market opened, also buoyed Swiss shares with the benchmark SMI trading 1.8% higher.

In June, the European Central Bank introduced negative interest rates on deposits with it, a move designed to encourage banks to lend rather than park money. The central bank of Denmark, which isn’t part of the eurozone, has also used negative interest rates.

“The SNB has bowed to the inevitable,” said Kit Juckes, macro strategist at Société Générale. “If 2015 brings more ECB easing and the start of Fed tightening, it is going to be difficult to hold it and this may not be the last step they take.”

The SNB’s move will widen the range for three-month Swiss franc Libor, a key interest rate, to minus 0.75% to 0.25%.

An expanded version of this report appears on WSJ.com