The Strategist

Swiss National Bank tightens monetary policy

10/04/2022 - 04:21

The Swiss National Bank's overnight deposits dropped by 77.5 billion Swiss francs ($78.32 billion) last week, the largest weekly decline ever. This is yet another indication that the monetary policy of the central bank is becoming tighter.

Ivan Radic
Ivan Radic
Demand deposits, or funds held by commercial banks at the SNB, decreased from 747.1 billion francs a week earlier to 669.6 billion francs, according to data released on Monday.

The central bank's use of reverse repurchase agreements and bond sales to absorb excess liquidity in the market is likely the cause of the greatest weekly decline since such records were first collected in 2011, according to experts.

Regarding its market operations, the Swiss National Bank stayed silent.

In order to move the market interest rate (SARON, the Swiss average overnight rate), which the watchdog increased from -0.25% to 0.5% last month, closer to the key rate, the central bank announced last month that it will use bond issuance and repo operations.

According to Credit Suisse economist Maxime Botteron, the SNB's bond issuance, repo transactions, and liquidity absorption operations are likely to blame for the majority of the fall in demand deposits.