Aiming to reduce its interest rate costs, the Swiss National Bank is adjusting the rules governing interest on sight deposits.
In recent months, banks in Switzerland benefited from an increase in interest margins thanks to their deposits with the Swiss National Bank (SNB). But just as the party gets going, the SNB is looking to remove the punchbowl by adjusting the interest it pays on banks' sight deposits, it said Monday.
Banks will receive interest at the full rate of the current key interest rate for a smaller proportion of their sight deposits. This will be done through two rule adjustments. It's reducing the factor limit applied to the tiered interest rate on sight deposits, while sight deposits held to meet reserve requirements will no longer earn interest.
Setting Limits
The adjustments will take effect on December 1 and are intended to ensure the effective implementation of monetary policy and reduce interest costs. There will be no change to the current monetary policy stance as a result, the SNB said.
The factor limit for the graduated interest rate on sight deposits will be reduced to 25 from 28. The SNB key interest rate will be applied to sight deposits up to this limit. Those above the limit will bear interest less an interest rate discount of 0.5 percentage points. The basis for calculating the limits remains unchanged.
Sight deposits in the amount of the minimum reserves and less cash holdings will no longer earn interest. The SNB regularly reviews the interest on sight deposits and makes adjustments if necessary, according to the statement.
