
Swiss Sight Deposits Soar After SNB Introduced Zero Rate Regime
(Bloomberg) — Sight deposits at the Swiss National Bank rose sharply after its reduction of borrowing costs to zero, as foreign banks moved cash to the institution to escape negative interest paid in the money market.
Last week, total sight deposits increased by some 18 billion francs ($23 billion) compared to the previous period, according to data published on Monday. This was due to holdings from foreign banks rising by 22 billion francs, while those of domestic lenders dropped by 4 billion francs.
Banks likely moved their money because the average interest rate in the Swiss money market dropped into negative territory after the SNB cut its policy rate to zero. On Friday, the so-called Saron stood at -0.04%.
The June 19 rate move also granted foreign lenders an allowance of 10 million francs, up to which they can park money at the central bank for an interest rate of 0%. This allows them to sidestep the negative rates on the money market.
Sight deposits of foreign banks “stood for about 10-20% of all sight deposits during negative rates” before 2022 and fell to 2% when the SNB lifted rates above zero, said Alessandro Bee, an economist at UBS.
“Now we’ve seen a significant rise back to 8%,” he added. “I think they just react much more quickly to negative rates and that we’re therefore seeing this shift.”
–With assistance from Joel Rinneby.
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