SNB steps up liquidity provision, Swiss Q1 account surplus narrows
The Swiss National Bank is reducing the lower limit on its overnight funding to a minimum of 0 per cent, from a current lower limit of 0.5%
The Swiss National Bank (SNB) will step up its liquidity providing operations and cut the interest rate on overnight funding for banks, it said on Monday.
The central bank will conduct additional open market operations - in the form of repo auctions - “as required”, and will also reduce its special rate for liquidity shortage financing.
The SNB is reducing the lower limit on its overnight funding to a minimum of 0 per cent, from a current lower limit of 0.5 per cent.
“As before, the special rate will be calculated as the SNB policy rate plus a surcharge of 50 basis points,” the central bank said.
“However, the lower limit for the special rate is to be reduced to at least 0 per cent, down from the current level of at least 0.5 per cent,” it said.
The change, effective from July 1, is intended to bring the overnight funding rate more into line with the SNB’S policy rate of minus 0.75 per cent, used by the central bank to ease appreciation pressure on the Swiss franc.
The liquidity-shortage financing facility allows Swiss banks to bridge unexpected, short-term liquidity bottlenecks.
The SNB is meanwhile stepping up its repo auctions to help steer the Swiss overnight inter
est rate ( SARON) closer to its target of minus 0.75 per cent.
Several times recently the SNB has used repo auctions to manage the market rate when it threatened to rise above the SNB’S policy rate, analysts have said.
The latest changes were introduced after the SNB reviewed the interest rates for its standing facilities following the introducing of its COVID-19 refinancing facility (CRF).
So far, 15.5 billion francs ($16.36 billion) in emergency bridging credits have been handed out to 130,000 companies hit by the downturn.
Banks fund the payments with liquidity from the SNB, with the loans secured by government guarantees.
Switzerland’s reserve assets rose by more than 34 billion Swiss francs ($35.88 billion) in the first quarter as the Swiss National Bank ramped up currency interventions to curb the safe-haven franc’s strength, data released on Monday showed.
Transactions recorded in the country’s financial account showed a net acquisition of 34 billion francs on the assets side and a net incurrence of 35 billion on the liabilities side in the first quarter.
“The SNB’S foreign currency purchases dominated on the assets side; this was reflected in an acquisition of reserve assets,” the SNB said.
Reserve assets rose by a net 34.52 billion in the quarter after a decline of 600 million in the fourth quarter of 2019 and a gain of 2.28 billion in the year-earlier quarter.
Switzerland’s current account surplus narrowed to 17 billion francs in the first quarter of 2020, 3 billion francs less than in the same quarter of 2019.
“This decline was principally due to trade in services, particularly licence fees, telecommunications, computer and information services, and business services,” the central bank said.
The Swiss National Bank (SNB) said last week that it will keep its ultra-expansive monetary policy for “some time” after cutting its inflation outlook and saying it needs negative rates and currency interventions to shield Switzerland from the coronavirus driven-recession.
SNB Chairman Thomas Jordan, Governing Board member Andrea Maechler and ViceChairman Fritz Zurbruegg attended a news conference in Bern, Switzerland. Switzerland is facing its sharpest downturn in decades after the pandemic shut down many businesses, pushed up unemployment and dented demand at home and abroad.
The SNB expects Swiss GDP to shrink 6 per cent this year, the worst downturn since the aftermath of oil price shocks in the 1970s, and sees no rise in consumer prices before 2022, and then by just 0.2 per cent.
The SNB kept its policy interest rate and the rate it charges on sight deposits at minus 0.75 per cent, as unanimously expected by analysts polled by Reuters. “I believe it will be necessary to maintain this expansionary monetary policy for some time,” Thomas Jordan said.
“We need a completely different outlook before we can change monetary policy, more inflation and also a much better economic outlook,” he told journalists. The Swiss franc weakened slightly against the euro after the decision.
The SNB’S new conditional inflation forecast of below 2 per cent over the entire forecast horizon, suggests it will hold the policy rate until at least the first quarter of 2023, said Credit Suisse economist Maxime Botteron.