ZURICH (Reuters) – The Swiss National Bank has issued bills and repurchase agreements (repos) worth nearly 140 billion Swiss francs ($148.6 billion) after the central bank started its latest round of monetary tightening, SNB governing board member Andrea Maechler said on Thursday.
The central bank deployed both instruments to mop up excess liquidity held by commercial banks and steer market rates close to the new policy rate of 0.5% it introduced on Sept 22.
The rate increase was intended to tackle inflation which has proved “more persistent and become more broad-based than had initially been expected”, Maechler said.
Still, the announcement of a policy rate change on its own was not enough to get market rates to rise, especially in an environment of abundant reserves, she said in remarks prepared for an event in Geneva.
As part of its new approach, the SNB absorbed a ‘sizeable’ volume of reserves immediately.
“The market’s take-up of our term repos and SNB Bills auctions was very strong from the outset, and it continues to be strong,” Maechler said.
“By the end of October, the combined stock of repo transactions and SNB Bills used to absorb excess reserves was close to 140 billion Swiss francs.”
The SNB has also tiered the payment of interest on the reserves commercial banks hold with it.
Banks receive interest at 0.5% up to a certain threshold, but nothing above, a limit intended to encourage interbank trading.
Absorbing liquidity and tiered interest have been successful, nudging the market Swiss Average Rate Overnight (SARON) rate close to the SNB’s 0.5% target.
“You can see that on 23 September, SARON jumped all the way up to 0.38%,” Maechler said.
“In other words, it moved to within just 12 basis points of the new policy rate. Over subsequent days, SARON increased further and has remained close to our policy rate since then.”
($1 = 0.9420 Swiss francs)
(Reporting by John Revill; Editing by Michael Shields)
