By John Revill
Zurich (Reuters) -The Swiss National Bank is lowering the threshold factor for the interest it pays commercial banks on overnight deposits, a move designed to stimulate interbank lending and smooth the transmission of monetary policy to market rates.
The SNB pays 0% to banks on sight deposits up to 18 times their minimum reserve requirement, the method the central bank uses to implement its policy interest rate it kept at 0% last week.
Holdings above the 18 times threshold are charged an interest rate of minus 0.25%.
On Monday the SNB said it was lowering the threshold when the negative rate applies to 16.5 times, effective from November 1, its fourth change in the last year.
“The lowering of the threshold factor counteracts the increase in thresholds due to the raising of the minimum reserve requirement as of 1 July, 2024,” the SNB said.
The SNB raised the minimum reserve ratio for domestic banks in July 2024, from 2.5% to 4.0% of their relevant liabilities.
Monday’s decision was designed to ensure the implementation of monetary policy remained effective and supported an active money market, the SNB said.
“The adjustment of the factor has no impact on the current monetary policy stance,” the SNB added.
“This move is designed to stimulate more activity on the interbank lending market because it means more bank’s reserves will be subject to the minus 0.25% lower interest rate,” said UBS economist Maxime Botteron.
The change was likely to prevent declines in interbank lending in future, he said.
“If you don’t move the threshold lower, at some point no more banks’ reserves would be subject to the negative rate and the banks would have no incentive to lend to each other.”
This would mean the Swiss overnight lending rate, SARON, would be less easily calculated, as it based on the actual transactions on the market.
“SARON is important for the transmission of monetary policy as it’s the base for other interest rates in the economy,” said Botteron.
(Writing by John Revill and Miranda MurrayEditing by Ludwig Burger)
Comments