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Home News SNB bows to pressure from banks for relief from negative rate

SNB bows to pressure from banks for relief from negative rate

Published on 19/09/2019

The Swiss National Bank (SNB) has offered banks some relief from negative interest rates, saying it would exempt more of their reserves from the cost of the policy.

The finance industry has long complained about the impact of sub-zero rates on profitability, and the Swiss Bankers Association said this month it was causing “massive structural damage” to the economy.

On Thursday, officials led by SNB President Thomas Jordan responded, saying the low-rate environment around the world has “become more entrenched and could persist for some time yet”. They will exempt 25 times minimum reserves from November 1, up from 20 currently, and review the level monthly.

The decision came as the SNB held its policy rate and deposit rate at an ultra-low minus 0.75%. It also reiterated its currency intervention pledge, saying the franc is highly valued.

There were also huge downgrades to growth and inflation. The SNB now sees growth as low as 0.5% this year, from around 1.5% previously. Inflation will almost stagnate in 2020 and be just 0.6% in 2021.

Busy week

The Swiss policy decision comes in a busy week for central banks after the European Central Bank’s recent announcement of a new stimulus package. The Federal Reserve on Wednesday cut its key rate for the second time this year, though Chairman Jerome Powell said only “moderate” policy moves should be sufficient to sustain the US expansion.

The Bank of Japan left policy unchanged on Thursday but said it would take a closer review of the economy next month, and Indonesia’s central bank cut its key interest rate for a third straight month. Norway bucked the global trend with a rate hike.

As the US-China trade war hits confidence and depresses momentum, Switzerland hasn’t been immune, with manufacturing weakening this year. It’s also seen the franc strengthen, and data suggest it’s been intervening to tame the currency.

With a potential no-deal Brexit looming in October, there’s a chance the haven currency could come under renewed appreciation pressure. The SNB intervened after the UK’s 2016 referendum to leave the European Union and has a history of announcing ad-hoc rate cuts, most famously in 2015.