Why Did Switzerland Cut 30B Francs Deposits Over Night?

Statistics released Monday showed that the amount of cash held by commercial banks at the Swiss National Bank fell by 30B Swiss francs ($30.07B) overnight, showing how the central bank is running monetary policy.

Total sight deposits, which include additional deposits in Swiss francs made on sight, decreased from 669.585B francs the previous week to 639.332B francs this week. Last week, the reduction in sight deposits held by commercial banks with the central bank was the second-largest decline since weekly records started 11 years ago.

Swiss National Bank Efforts to Fight Inflation

According to analysts, the SNB could sell notes and repos on the market as part of the central bank’s plan to raise the average Swiss rate (SARON) to a policy rate of 0.5%. The movement follows a 77.5B franc decline in the previous week. To combat Swiss inflation, the SNB increased its benchmark rate last month to 0.5 percent.

According to economist Maxime Botteron of Credit Suisse, the SNB’s actions to absorb liquidity, such as selling repos and SNB Bills, likely caused the fall in sight deposits. It’s also probable that the SNB sold some of its foreign assets to maintain the Swiss franc’s value when it declined last week, which has helped to contain the scope of imported inflation.

The SNB is prepared to take steps to buy and sell the currency if the franc is too weak or too strong, board member Andrea Mahler said last week. Karsten Junius, an economist at J.Safra Sarasin, said that if the SARON stays too low compared to the policy rate, they anticipate that the SNB will continue to absorb liquidity from the market by issuing more bills and fine-tuning with additional repos. Further interventions through bills or repos don’t appear necessary because the SARON is currently only 0.445% away from the official policy rate.