SNB could cut ex­emp­tion limit if more eas­ing needed: Jor­dan

The Pak Banker - - FRONT PAGE -

ZURICH: The Swiss Na­tional Bank could lower the amount of bank re­serves that are ex­empt from its neg­a­tive in­ter­est rate if it needs to ease pol­icy fur­ther, the cen­tral bank's pres­i­dent said. "So far we do not plan any change, but of course the ex­emp­tion thresh­old is a pos­si­ble pol­icy in­stru­ment," SNB Pres­i­dent Thomas Jor­dan said in an in­ter­view in Shang­hai, where he was at­tend­ing a Group of 20 meet­ing. "It is a dif­fer­ent mech­a­nism to change the re­stric­tion of mon­e­tary pol­icy, but of course the com­bi­na­tion of neg­a­tive rates and the size of the ex­emp­tion thresh­old in to­tal makes the im­pact on mon­e­tary pol­icy con­di­tions."

To make the franc less at­trac­tive as a haven cur­rency, the SNB has charged banks for sight de­posits since Jan­uary 2015, though there is an ex­emp­tion thresh­old of 20 times their min­i­mum-re­serve re­quire­ments. With the SNB's de­posit rate al­ready at a record low of mi­nus 0.75 per­cent, econ­o­mists have de­bated what steps Jor­dan and his fel­low pol­icy mak­ers may take should the Euro­pean Cen­tral Bank de­cide to boost stim­u­lus at its March 10 meet­ing.

While Jor­dan said on Satur­day that cen­tral banks haven't yet run out of am­mu­ni­tion, the SNB has said in the past that there's a limit to how low a neg­a­tive rate can be cut be­cause at some point in­vestors will be­gin to hoard cash to cir­cum­vent the de­posit rate. Ad­just­ing the thresh­old for ex­emp­tions could be an al­ter­na­tive. "Both the in­ter­est rate and the size of the ex­emp­tion thresh­old are pol­icy vari­ables that we have," Jor­dan said. Still, what move the SNB takes next de­pends pri­mar­ily on the franc, ac­cord­ing to Bloomberg's monthly sur­vey of econ­o­mists, pub­lished on Feb. 15. While the Swiss cur­rency traded as low as 1.11997 per euro on Feb. 4, it has since ap­pre­ci­ated. Even so, it is far from the lev­els of a year ago af­ter the SNB aban­doned its cap of 1.20 per euro on the franc in Jan­uary 2015.

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