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The Swiss National Bank offered banks additional relief from its negative interest rates, a move that could give it some leeway to cut them further if needed.
With the SNB’s policy rate at minus 0.75%, the finance industry has long complained about the impact on profitability. Officials led by Thomas Jordan responded on Thursday, saying they’ll exempt more of banks’ reserves from the effects of their monetary policy.
Although the Swiss Bankers Association lambasted negative rates for causing massive structural damage, the SNB chief argued the adjustment wasn’t a capitulation to pressure. The measure comes a week after the European Central Bank cut its deposit rate and introduced a tiering system.
“It’s not about making concessions for the banks, it’s much more that one must assume that this low-yield environment globally will be around for some time,” Jordan said on radio station SRF 4. “Therefore, it’s important that we adjust the system so as to maintain its effectiveness on the one hand, and to guarantee the central bank’s room to maneuver on the other.”
The SNB won’t impose charges on amounts as much as 25 times minimum reserves from Nov. 1, up from 20 currently, and will review the level monthly. The move could help to prevent any further easing being passed on by banks to retail savers.
While the SNB kept rates on hold, a deteriorating global outlook and no-deal Brexit could put upward pressure on the haven franc, forcing a policy response.
“Despite not acting at this meeting, the SNB signaled strongly that further policy easing is on the way,” economists at Citigroup including Christian Schulz said in a note.
The SNB also said the franc is highly valued and reiterated its intervention pledge. The currency touched a two-year high against the euro earlier this month.
The franc was up 0.3% at 1.0965 per euro at 12:33 p.m. in Zurich.
Citing downside global risks, the SNB also made huge downgrades to the outlook. It now sees growth as low as 0.5% this year, from around 1.5% previously. Inflation will almost stagnate in 2020 and be just 0.6% in 2021.
The Swiss policy decision comes in a busy week for central banks. On Wednesday the Federal Reserve cut its key rate for the second time this year.
The Bank of Japan left policy unchanged on Thursday but said it’ll take a closer review of the economy next month. Indonesia’s central bank cut its key interest rate for a third straight month. Norway bucked the global trend with a rate hike.
(Updates with Jordan comments in fourth paragraph.)
--With assistance from Jana Randow, Jan Dahinten, Patrick Winters, Leonard Kehnscherper, Paul Gordon, Harumi Ichikura and Joel Rinneby.
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