jeu, Nov 2nd 2023
The Swiss National Bank (SNB) is changing its practice regarding interest on so-called sight deposits. However, there is no change in the monetary policy stance, it was stressed.
The SNB is specifically reducing the factor for the limit, which is applied in the graduated interest on sight deposits, as the monetary guardians announced on Monday. As of the beginning of December, this will be reduced to 25 instead of 28 times the minimum reserves.
The SNB key interest rate will be applied to sight deposits up to this limit. Sight deposits above the limit will bear interest at the SNB key rate minus an interest rate discount of 0.5 percentage points.
In addition, sight deposits held to meet minimum reserves will no longer earn interest, the communiqué added.
The adjustments will not change the current monetary policy stance, the SNB stressed. Rather, the adjustments are intended to ensure the continued effective implementation of monetary policy, according to the central bank. And they should lower the SNB’s interest costs.
According to Thomas Stucki, head of investments at St. Galler Kantonalbank and a National Bank expert, this is a very technical process. In principle, the SNB does not want to pay interest on sight deposits and such an interest rate is not part of its monetary policy instruments. After the interest rate turnaround, however, it had to tie up surplus sight deposits – in order to ensure that the important Saron was quoted close to the SNB key interest rate.
This no longer had to be done to the same extent, however, because the SNB had sold foreign exchange in recent months. On the assets side of the balance sheet, the corresponding position has been reduced, which means that less sight deposits are needed on the liabilities side.
Stucki also assumes that the factor will continue to decline over time. As a matter of principle, the SNB regularly reviews the interest on sight deposits and makes adjustments where necessary, the SNB itself wrote in its communiqué.
UBS economist Maxime Botteron expects the decision to lead to higher money market activity. In his opinion, this – i.e. the effective transmission of monetary policy and the functioning of the money market – is also the reason for the changes in interest rates.
According to Botteron, however, the measure also reduces the SNB’s interest expense by around 700 million francs per year. However, various SNB experts consider this to be an unimportant argument because it is a marginal sum for the SNB.
Nor were the accusations that the SNB was subsidizing the banks by charging interest on sight deposits the reason for the current change, says Stucki in this context. “The SNB is concerned with the functioning of monetary policy.”
For the SNB Observatory, led by economists Stefan Gerlach, Yvan Lengwiler and Charles Wyplosz, the issue is nevertheless highly relevant. Interest on reserves weighs on a potential SNB profit year after year, they noted in a report also published Monday called “Should the SNB pay interest to banks?”
And they calculate that the costs added up to about 3.4 billion in the first half of the year alone. “Simply extrapolated to the whole year, this is more than the maximum profit of 6 billion francs that the SNB could distribute to the public in a good year.” At the very least, he said, this raises the question of whether it makes sense to continue to pay interest on reserves.
This is all the more true because there is little evidence that banks “are now passing on their profits from interest on reserves to customers by lowering fees or paying higher interest rates on bank deposits,” the report said.
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