The Swiss National Bank is cutting the amount of money commercial lenders can get by parking funds at the central bank, an unexpected move that came outside of a scheduled meeting.
As of Dec. 1, the SNB will stop paying banks for the money they are required to keep at the institution as a minimum reserve, it said in a statement on Monday.
Additionally, it’s lowering the threshold factor applied in the tiered remuneration of sight deposits to 25 from previously 28. This reduces the amount of funds that are fully eligible to earn interest from the SNB.
- For sight deposits up to this threshold, the SNB policy rate — currently 1.75% — will be applied
- Sight deposits above the threshold will be remunerated at the SNB policy rate minus a discount of 0.5 percentage points
The SNB said that “these adjustments will ensure that monetary policy implementation remains effective and will reduce interest costs for the SNB” and that the “changes have no impact on the current monetary policy stance.”
Switzerland already introduced a tiered system for sight-deposit remuneration in September 2022, when it exited negative interest rates. Central banks across Europe are struggling to figure out how to avoid losses on bank deposits after ending years of ultra-low borrowing costs.
“Saving interest costs is no primary target, but central banks need to watch their profitability so they keep their independence,” said Karsten Junius, chief economist with Bank J Safra Sarasin in Zurich, highlighting that the European Central Bank made a similar move earlier this year. “It’s refreshingly honest that the SNB admits that.”
The Swiss monetary policy authority has a tradition of announcing changes outside of its quarterly policy reviews and Monday’s move came as a surprise. SNB rate setters’ next official gathering is on Dec. 14, with economists predicting they will hold borrowing costs for a second consecutive meeting.
--With assistance from Laura Malsch.
(Updates with economist comment in seventh paragraph)
