Swiss National Bank cut overnight deposits by 30 billion francs

On Monday, the report revealed how the central bank used more restrictive monetary policy to reduce liquidity. According to it, funds of commercial banks held at the Swiss National Bank (SNB) dropped by 30 billion Swiss francs ($30.07 billion) last week. 

Sight deposits fell to 639.332 billion francs from 669.585 billion francs the week before. 

This was the second biggest decline in sight deposits, funds of commercial banks kept at the overnight deposit facility of the central bank, in 11 years. 

A week earlier, overnight deposits held by the SNB dropped by 77.5 billion Swiss francs. As reported by economists, this week’s decline may be the result of SNB selling bills and repo transactions in the market as part of its tactic to hike the average Swiss overnight interest rate (SARON) to the central bank's 0.5 percent discount rate.

As the Swiss franc slipped last week, the SNB could also conduct currency intervention, selling foreign currency to maintain the exchange rate. The measures taken by the SNB could affect the extent of imported inflation.

Last week, board member Andrea Mahler made the statement reporting that the SNB was prepared to intervene if the franc became too weak or too strong.

Carsten Junius, an economist at J.Safra Sarasin expects the SNB to continue liquidity-absorbing operations with bills and repos if SARON isn’t close to the policy rate. According to him, the current rate at 0.445% is not far from the official rate. In his opinion, resorting to bonds and repos to adjust the rate is not that required now.