SNB-Moser: New monetary policy instruments have proven their worth
Published: Thursday, Nov 9th 2023, 18:50
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The Swiss National Bank (SNB) has had to adopt a new approach to implementing its monetary policy on the money market during the transition to positive key interest rates. This new approach has worked "very well" so far, said Thomas Moser, deputy member of the SNB's Governing Board, in a presentation.
It has allowed the SNB to implement monetary policy effectively, both in normal times and in times of stress on the financial markets, Moser said at the SNB's Money Market Apéro in Geneva on Thursday evening.
In March, for example, the SNB had to provide Credit Suisse with extensive liquidity assistance, which increased total sight deposits. At the same time, this resulted in a higher supply of liquidity and a lower demand for liquidity on the money market, said Moser.
As a result, the Saron and other money market interest rates in Swiss francs came under some downward pressure and deviated more strongly from the SNB key interest rate. The SNB subsequently used a broad range of instruments to very quickly increase the volume absorbed. And by June, the distortions on the Swiss franc money market caused by the CS crisis had dissipated again, according to Moser.
According to Moser, the SNB's new monetary policy approach comprises two elements: Firstly, "reserve tiering", i.e. a graduated interest rate on banks' sight deposits at the SNB, and secondly, the absorption of sight deposits through open market operations - specifically via "term repo transactions" and SNB Bills. This would allow the SNB to control money market interest rates.
According to Moser, both instruments have proven themselves for the absorption of sight deposits. And they are well integrated into the universe of money market instruments.
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