The Swiss National Bank has changed its practice for the interest rate on sight deposits.
Published: Monday, Oct 30th 2023, 12:51
Updated At: Tuesday, Oct 31st 2023, 00:53
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The Swiss National Bank (SNB) has changed its practice for the interest rate of so-called sight deposits. However, it was emphasized that this does not change the monetary policy orientation.
The Swiss National Bank (SNB) has announced a reduction in the factor applied to the limit for the tiered interest rate on sight deposits. Starting in December, the factor will be reduced from 28 to 25 times the minimum reserves.
Deposits up to a certain limit are subject to the Swiss National Bank's (SNB) interest rate. Deposits exceeding this limit are subject to the SNB interest rate minus a 0.5 percentage point reduction.
Additionally, sight deposits held to meet minimum reserves will no longer be subject to interest, according to the communiqué.
The Swiss National Bank (SNB) emphasized that the current monetary policy remains unchanged despite the adjustments. According to the central bank, the adjustments are intended to ensure an effective implementation of the monetary policy and to reduce the interest costs of the National Bank.
Technical Process
The Swiss National Bank (SNB) has recently implemented a technical process to bind excess giro funds to itself. This process involves paying interest on sight deposits, which is not part of the SNB's usual monetary policy toolkit. After the recent interest rate reversal, the SNB needed to ensure that the important Saron rate remained close to the SNB's benchmark rate, and thus had to take measures to bind excess giro funds to itself.
The Swiss National Bank (SNB) has recently sold foreign currencies, reducing the corresponding position on its balance sheet. This means that there is less need for demand deposits on the liabilities side, and therefore less need for the SNB to conduct the same level of operations as before.
The Swiss National Bank (SNB) has announced that the interest rate on sight deposits will be reduced from -0.75% to -0.85%. According to Stucki, this factor is expected to decrease further over time. The SNB regularly reviews the interest rate on sight deposits and makes adjustments as necessary, as stated in its communiqué.
Less interest payments.
Economist Maxime Botteron expects increased money market activity from the decision. According to him, this - the effective transmission of monetary policy and the functioning of the money market - is also the reason for the changes in interest rates.
Experts disagree with the Swiss National Bank's (SNB) argument that its measure to reduce the amount of money it holds in reserves will save it around 700 million Swiss francs a year in interest costs. They argue that this is an insignificant amount for the SNB.
The Swiss National Bank (SNB) has recently announced a change in the interest rate on sight deposits. According to SNB spokesman Walter Stucki, this change was not due to the allegations that the SNB was subsidizing banks with the interest rate on sight deposits. Instead, Stucki states that the SNB's goal is to ensure the proper functioning of monetary policy.
It raises questions.
The Swiss National Bank Observatory, headed by economists Stefan Gerlach, Yvan Lengwiler and Charles Wyplosz, is also highly concerned with the issue. In a report released on Monday entitled "Should the SNB Pay Banks Interest on Reserves?", they noted that the interest rate on reserves would reduce the SNB's potential profits year after year.
The Swiss National Bank (SNB) has estimated that the costs of negative interest rates in the first half of the year alone amounted to around 3.4 billion Swiss francs. This, when extrapolated to the whole year, is more than the maximum profit of 6 billion francs that the SNB could distribute to the public in a good year. This raises the question of whether it is sensible to continue to pay interest on reserves.
Banks have been profiting from the interest on reserves, but there is little evidence that they are passing these profits on to customers by lowering fees or offering higher interest rates on deposits, according to the report.
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