SNB Keeps Interest Rates Unchanged19 March 2020
Swiss National Bank kept interest rates at minus 0.75%, while also announcing plans to support the economy and make it easier for banks with limiting restrictions put on them in the wake of the coronavirus pandemic.
Interest Rates Unchanged
On Thursday the Swiss National Bank has announced that it is keeping interest rates unchanged at the level of minus 0.75%. The bank is battling to keep CHF exchange rate stable, as many investors in times of worldwide turmoil decide to buy Swiss francs, considered as a safe haven asset. Measures taken include printing more francs to buy euros and other foreign currencies. However, actions taken by other central banks, like the Federal Reserve, the European Central Bank and the Bank of England have made it difficult for the ECB to ensure stable exchange rate of CHF. Media have suggested that the SNB will actively take part in assuring aa financial aid package of up to CHF100 billion, but officials at the bank did not commented these reports.
However, the SNB stated that is eager to provide support to the economy, together with the Federal Council. Swiss business is struggling as many shops, services are closed until at least April 19. So far announced CHF10 billion emergency aid package may not be enough. But the government is restricted by statutory Debt brake on how much debt it can used at one time, even in time of emergency situation. That is why many institutions, including KOF Swiss Economic Institute, have called for the SNB to give emergency cash from its reserves. Last time such situation happened was during 2007-2008 financial crisis.
The SNB decided to ease some restrictions on commercial banks, and further actions in that matter may follow. The bank has raised the threshold at which Swiss commercial banks are charged negative interest for cash hold at the central bank. From April 1 they can store 30 times more than their minimum capital reserves at the SNB in so-called sight deposits before charge is put on them. Previously, the limit was 25 times the minimum capital reserve.
Co-operation with Other Central Banks
The SNB is joining forces with other central banks, like the FED, to ensure the flow of US dollars to exchange rates market, as it was announced back on Sunday. Other central banks take different actions to help the economy in time of the coronavirus pandemic – FED has cut interest rates to nearly zero and announced plan to provide 700 billion dollars of support to the economy. Meanwhile, the ECB will inject extra 750-billion-euro worth in bonds under just launched Pandemic Emergency Purchase Programme. The Bank of England plans to pump as much money as its is needed to the British economy, that is struggling not only due to the coronavirus, but still fragile after Brexit.
More Interventions on Currency Market
The SNB plans more interventions on the foreign exchange market in a bid to stop CHF exchange rate from getting overvalued. Last year, it increased interventions to CHF13.2 billions, six times more than in 2018. As some data from this year shows, the SNB step up to intervene on forex market in a big way to stand in the way of the rising price of CHF.