SNB Could Cut Exemption Limit If Additional Easing Needed

Swiss National Bank President Thomas Jordan Interview

Swiss National Bank President Thomas Jordan.

Photographer: Michele Limina/Bloomberg
  • Change not planned, but an option, Jordan says in interview
  • Current threshold at 20 times minimum-reserve requirements

The Swiss National Bank could lower the amount of bank reserves that are exempt from its negative interest rate if it needs to ease policy further, the central bank’s president said.

“So far we do not plan any change, but of course the exemption threshold is a possible policy instrument,” SNB President Thomas Jordan said in an interview on Saturday in Shanghai, where he was attending a Group of 20 meeting. “It is a different mechanism to change the restriction of monetary policy, but of course the combination of negative rates and the size of the exemption threshold in total makes the impact on monetary policy conditions.”

To make the franc less attractive as a haven currency, the SNB has charged banks for sight deposits since January 2015, though there is an exemption threshold of 20 times their minimum-reserve requirements. With the SNB’s deposit rate already at a record low of minus 0.75 percent, economists have debated what steps Jordan and his fellow policy makers may take should the European Central Bank decide to boost stimulus at its March 10 meeting.

“Jordan’s confirmation is important and provides a strong signal about future SNB policy, in our view,” Nikolaos Sgouropoulos, a London-based foreign exchange strategist at Barclays Plc, said in a note to clients. “We now see an increased chance that the SNB takes steps towards its ‘nuclear’ option in the coming months if the franc continues to strengthen.”

The franc, which dropped as low 1.11997 per euro on Feb. 4, has since appreciated amid global market gyrations. It was little changed at 1.0908 at 12:30 p.m. on Monday in Zurich. Still, it’s still far from the levels of a year ago after the SNB abandoned its cap.

While Jordan said on Saturday that central banks haven’t yet run out of ammunition, the SNB has said in the past that there’s a limit to how low a negative rate can be cut because at some point investors will begin to hoard cash to circumvent the deposit rate. Adjusting the threshold for exemptions could be an alternative.

“Both the interest rate and the size of the exemption threshold are policy variables that we have,” Jordan said.

Still, what move the SNB takes next depends primarily on the franc, according to Bloomberg’s monthly survey of economists, published on Feb. 15.

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