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The Swiss National Bank’s efforts to ease some of the squeeze from negative interest rates hasn’t calmed the finance industry.
Just as its new tiering system comes into force, shielding an additional 100 billion francs ($100 billion) in deposits from its -0.75% deposit rate, the campaign against the sub-zero policy is heating up. Only last week, the Swiss Bankers Association called for negative rates to be scrapped, saying they were no longer needed.
The demand keeps alive a long-running claim by bankers across Europe that record-low interest rates are hurting profit margins and offer diminishing economic returns. The view was outlined by Credit Suisse Chief Executive Tidjane Thiam on Wednesday, who said they are “not helpful to the banking sector” and will have to change.
For lenders, the response of central banks around the world to the latest slowdown in the global economy has also increased concern that negative rates aren’t going away any time soon. The European Central Bank, which introduced its own tiering policy this week, in September cut interest rates to -0.50%.
The SNB’s new system, which comes into effect on Nov. 1, means less of banks’ reserves get hit. But there’s another side, in that it gives the central bank more room to push rates even further below zero if the economic situation deteriorates or the franc starts to appreciate. SNB officials have admitted as much, keeping banks on edge about what could be coming down the line.
“Banks are finally realizing that negative rates are going to be around for a long time,” said Adriel Jost, an economist at Wellershoff & Partners in Zurich. “The basic question is how much of an effect do the negative rates have on the exchange rate?”
The SNB’s new exemption threshold is 25 times an institution’s minimum reserves, up from 20 times, and will be reviewed monthly. According to Pictet’s Nadia Gharbi, about an additional 120 billion francs in deposits will be shielded. Credit Suisse economist Maxime Botteron estimates that will reduce the burden on the sector by 850 million francs annually.
Critics of the monetary policy can highlight that the franc has actually depreciated since the ECB’s rate cut in September, whereas in the past such a move would usually have led to a strengthening.
Last year, former SNB chief economist Kurt Schiltknecht urged the institution to raise rates, saying the currency probably wouldn’t react much to such a move. The Swiss Bankers Association has taken up that line of argument, saying the policy was having a “negligible” influence on inflation.
SNB Alternate Governing Board Member Martin Schlegel argues differently, warning that a change of policy would have a dramatic effect on the franc.
“What would be the alternative -- if the SNB would say ‘OK, we stop the negative interest rates, go to zero’ -- just hypothetically,” he said at an event on Monday. “This would not be good for Switzerland because we’d have a massively strong currency.”
SNB President Thomas Jordan reiterated that view on Thursday, saying the policy would only be around “for as long as the benefits outweigh the costs.”
(Updates with SNB’s Jordan in final paragraph. An earlier version of this story corrected the month of the ECB rate cut.)
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