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The Swiss National Bank could reduce the amount of leeway it grants banks on its negative deposit rate in a bid to prevent an already “significantly overvalued” franc from strengthening, President Thomas Jordan said.
Still, reducing the threshold — currently 20 times an institution’s minimum reserves — isn’t an imminent step, Jordan said in an interview with Bloomberg Television in Washington on Saturday, where he attended the spring meetings of the International Monetary Fund and the World Bank. That’s despite mounting stimulus in the neighboring euro area from the European Central Bank.
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“For the time being there is no plan to change the exemption threshold,” Jordan said. “As I said before, this could also be potentially a policy instrument,” he also said, affirming comments made earlier this year in an interview in Shanghai.
A newly expanded ECB bond-buying program is adding to euro- area liquidity that could push down the euro against the haven franc. That leaves economists wondering whether SNB policy makers could build upon their existing tools of a sight deposit charge of 75 basis points and a pledge to intervene in currency markets without inflicting unwanted damage to the financial system.
Jordan said that while he believes banks can cope with even deeper negative rates, “obviously, we have to analyze that exactly, and see under what circumstances we have also to make adjustments in that case to the system.”
Under the current threshold, 73 percent of domestic sight deposits are exempt from the deposit charge, according to Credit Suisse Group AG calculations.
By Alessandro Speciale (Bloomberg)