Switzerland
Switzerland[CHF]
Institutional framework
Article 99 of the Federal Constitution entrusts the Swiss National Bank (SNB), as an independent central bank, with the conduct of monetary policy in the interests of the country as a whole. The mandate is explained in detail in the National Bank Act (art. 5 para. 1), which requires the SNB to ensure price stability and, in so doing, to take due account of economic developments.
The SNB's monetary policy strategy sets out how the SNB implements its monetary policy mandate. It consists of three elements: a definition of price stability, a medium-term inflation forecast, and the SNB policy rate.
The SNB implements its monetary policy by steering the interest rate level on the money market. In so doing, it seeks to keep the secured short-term money market rates close to the SNB policy rate. In this regard, the SNB focuses on SARON (Swiss Average Rate Overnight) - a secured, overnight market rate, which is the most representative of the short-term Swiss franc rates.
The SNB can influence money market rates by means of its open market operations or adjust the interest rate on sight deposits held by banks and other financial market participants at the SNB. In order to influence monetary conditions, the SNB can also intervene in the foreign exchange market.
Key features of the monetary policy implementation framework
The SNB distinguishes between open market operations and standing facilities. In the case of the former, the SNB takes the initiative in the transaction, whereas the initiative comes from the eligible counterparties in the case of standing facilities.
Open market operations include repo transactions, the issuance of SNB Bills, as well as the purchase and sale of SNB Bills in the secondary market. The SNB can carry out open market operations in the form of auctions or bilateral transactions. The auctions are conducted either by volume tender or by variable rate tender.
Standing facilities include the liquidity-shortage financing facility and the intraday facility. As far as the standing facilities are concerned, the SNB merely sets the conditions at which counterparties can obtain liquidity.
In principle, all banks domiciled in Switzerland and the Principality of Liechtenstein are admissible as counterparties in monetary policy operations. Other domestic financial market participants such as insurance companies, as well as banks headquartered abroad, may be admitted, provided there is a monetary policy interest in doing so and they contribute to liquidity on the secured Swiss franc money market.
In order to fulfil its monetary policy mandate, the SNB can also purchase and sell foreign currency against Swiss francs on the financial markets. Most foreign exchange transactions conducted by the SNB are either spot or swap transactions. The SNB concludes foreign exchange transactions with a wide range of domestic and foreign counterparties.
A further monetary policy instrument is the interest rate on sight deposit accounts. The National Bank Act authorises the SNB to keep interest-bearing and non-interest-bearing accounts for banks and other financial market participants. Until January 2015, the sight deposit accounts were non-interestbearing. Since 22 January 2015, the SNB has charged a negative interest rate on sight deposits held by banks and other financial market participants at the SNB. However, exemption thresholds apply. By setting the interest rate on sight deposits and defining other conditions, the SNB influences the interest rate level on the money market.
The duty to hold minimum reserves ensures that banks have a minimum demand for base money. Eligible assets in Swiss francs comprise coins in circulation, banknotes and sight deposits held at the SNB. The minimum reserve requirement currently amounts to 2.5% of the relevant liabilities, which are calculated as the sum of short-term liabilities in Swiss francs (up to 90 days) plus 20% of liabilities towards customers in the form of savings and investments. Since monetary policy in recent years has provided the banking system with ample liquidity, banks' reserves are currently at a level that exceeds the statutory minimum reserve requirement several times over. The SNB requires that the banks and other financial market participants with which it conducts lending transactions provide sufficient collateral. In so doing, the SNB protects itself against losses and ensures equal treatment of its counterparties. Since the SNB also admits banks headquartered abroad to its monetary policy operations and since the stocks of Swiss franc securities are limited, it also accepts securities in foreign currencies. The SNB sets high minimum requirements with regard to the marketability and credit rating of securities.
More detailed information can be found in the Guidelines of the Swiss National Bank on Monetary Policy Instruments and in the five related Instruction Sheets (available on the SNB website).
Unconventional monetary policy measures
The most important unconventional measures taken by the SNB in recent years have been interventions in the foreign exchange market, the temporary setting of a minimum exchange rate against the euro (September 2011 until January 2015), and the introduction of a negative interest rate on sight deposits held by banks and other financial market participants at the SNB.
Institutional setup of monetary policy decisions and operations
| Policy decision body, size and composition | Governing Board |
|---|---|
| Major mandates 1 | The Swiss National Bank conducts the country’s monetary policy as an independent central bank. It is obliged by the Constitution and by statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments. In doing so, it creates an appropriate environment for economic growth. |
| Decision-making process | The Governing Board sets the monetary policy at its meetings (MPA) |
| Frequency / length of meetings | Quarterly, extraordinary meetings possible |
| Frequency of announcements | Same |
| Main policy target | SNB policy rate (since 13 June 2019) 2 |
Overview of key features
| Key policy rate | SNB policy rate |
|---|---|
| maturity (days) | 1 day; to next scheduled or extraordinary MPA |
| Operating target | Secured short-term Swiss franc money market rates |
| maturity (days) | 1 day, as SARON is the most representative of the secured short-term Swiss franc money market rates today. |
| Standing facilities | Liquidity –shortage financing facility |
| Corridor width (bp) | N/A |
| Reserve requirements | Yes |
| maintenance period | 1 month, from the 20th day to the 19th day of the subsequent month |
| Main operation 3 | To keep secured short-term Swiss franc money market rates close to the positive SNB policy rate, the SNB uses a tiered reserve remuneration system and conducts liquidity absorbing operations. The main operations are repo transactions and issuance of own debt register claims, so-called SNB Bills. |
| functions | |
| maturity (days) | As required |
| regular interval | As required |
| frequency | As required |
| Overall frequency | As required |
| Discretion left to operational desk | |
| Key policy signals via | |
| announcement | √ |
| keynote tender | √ |
| standing facility | |
| other | √ 4 |
Monetary policy communication
| Explicit use of forward guidance | No |
|---|---|
| Timing / media of policy announcement | 9:30 am on the day of monetary policy assessment on central bank website, wire services; 10:00 am media conference (four times a year) |
| Policy announcement and documents | Announcement of SNB policy rate, interest on sight deposits and if needed further policy measures 5 |
| Explaining policy decisions | Press release, media conference |
| Dissemination of minutes (timing / media) | N/A |
| Content of minutes | N/A |
| Publication of forecasts 6 | Conditional inflation forecast |
| Publication of projected path of policy rate 7 | N/A |
Reserve requirements: ratios and size
| Main functions served | Stabilise demand for base money |
|---|---|
| Domestic currency | 2.5% |
| Foreign currency | – |
| Average | 2.5% |
| Required reserves | CHF 23.20 bn 8 |
| Required reserve as % of GDP | 3.11% |
| Actual reserves | CHF 648.19 bn 9 |
| Actual reserve as % of GDP | 86.81% |
Main features of reserve requirements
| Averaging | Y |
|---|---|
| Carry-over | N |
| Type | Lagged |
| Maintenance period | 1 month |
| end (day) | 19th |
| Calculation period | 3 months |
| end (day) | end-month |
| Lag before maintenance | 20 days |
| Vault cash | Y |
| restrictions | |
| Remuneration | N |
| average rate | |
| marginal rate | |
| Framework last changed | 03/04 |
Liquidity position and forecasting
| Structural Position | Surplus |
|---|---|
| Most volatile factor(s) | Treasury account, sight deposits non-banks, banknotes |
| Most unpredictable factor(s) | Treasury account, sight deposits non-banks, banknotes |
| Forecast horizon(s) | 10 days |
| Frequency | Daily |
| Frequency of revision | Daily |
| Forecast published? | No |
Standing facilities: lending / market ceiling
| Name | Liquidity-shortage financing facility |
|---|---|
| Form | Repo (inject liquidity) |
| Pricing method | max(SNB policy rate,0) +Â 50 bps, at least 0% |
| Maturity | O/N |
| Access limited by/to | (1) limit by the SNB, (2) a custody cover account, (3)Â collateral eligible for SNB repos covering at least 110% of the limit must be held |
| Function(s) | Liquidity management; to bridge unexpected, short-term liquidity bottlenecks |
Standing facilities: deposit / market floor
| Name | Interest on sight deposits |
|---|---|
| Form | Tiered remuneration of sight deposits |
| Pricing method | Reserves that exceed a bank-specific threshold are remumerated at the SNB policy rate, while reserves that exceed this threshold are remunerated at the SNB policy rate minus a discount. |
| Maturity | O/N |
| Access limited by/to | All sight deposits held by banks and other financial market participants at the SNB. |
| Function(s) | Tiered reserve remuneration i) sets the floor for overnight rates and ii) provides incentives to trade in the interbank market |
Open market operations: repo or reverse repo
| Name/Type 10 | Repo and reverse repo |
|---|---|
| Maturity | 1 week to 1 year |
| Frequency | As needed |
| Pricing method | Auction (fixed rate tender) or bilateral |
| Access limited by/to | All domestic banks with sight deposits at the SNB; other domestic participants in the financial market, as well as banks that are domiciled abroad fulfilling eligibility criteria |
| Function(s) | Liquidity management |
Open market operations: central bank bills
| Name | SNB Bills |
|---|---|
| Total issuance | |
| Maturity | Less than 1 year |
| Restrictions on possible maturities | |
| Pricing method | Auction, variable rate tender with American allocation |
| Access limited by/to | All parties who have a sight deposit account with the SNB and who are authorised to participate in the SIX Repo Ltd ‘CH Repo Market’ and ‘OTC Spot Market’ are eligible to participate in auctions (also on behalf of their customers ie non-banks) |
| Discretion left to operational desk | Maturity, marginal rate and amount issued |
Open market operations: FX swaps
| Maturity | 1 day – 3 months |
|---|---|
| Frequency | As needed |
| Pricing method | N/A |
| Access limited by/to | N/A |
| Function(s) | Liquidity management |
Other significant liquidity management means
| Name/Type 11 | Outright FX purchases and sales |
|---|---|
| Form | |
| Frequency | As needed |
| Maturity | |
| Pricing Method | |
| Access limited by/to | |
| Function(s) | MP implementation |
Settlement systems and intra-day liquidity facilities
| Settlement system | RTGS, since 1987 |
|---|---|
| Intra-day liquidity facility | Intra-day repo |
| Charge | No charge (110% collateral) |
| Foreign currency settlement system | EUR RTGS |
| CLS participation by banks | Yes |
| Other settlement system(s) | Securities settlement system |
Collateral
| Standing facilities: List of eligible collateral | Only those securities included in the list of collateral eligible for SNB repos may be used as collateral for repo transactions. This list is continuously updated and published on the SNB's website (www.snb.ch > Financial markets > Monetary policy operations > Collateral eligible for SNB repos). The SNB may accept securities (debt certificates) denominated in Swiss francs and foreign currency as collateral, provided the following criteria are met: (i) The securities are issued by central banks, public sector entities, international or supranational institutions, multilateral development banks and private sector entities. Securities issued by financial institutions are, as a rule, not eligible as collateral for SNB repos. However, covered bonds issued by financial institutions are admissible, provided the issuer is not a domestic financial institution or its foreign subsidiary. Also admissible are securities issued by the mortgage bond bank of the Swiss mortgage institutions and the mortgage bond institute of the Swiss cantonal banks. (ii) The securities have a fixed-principal amount with unconditional redemption. (iii) The securities have a fixed rate, floating rate or zero coupon. (iv) The securities are traded on a recognised stock exchange or a representative market in Switzerland or a member state of the European Union (EU), the European Economic Area (EEA) or in the UK with price data published on a regular basis. (v) The securities can be delivered through SIX SIS Ltd (SIS); intermediate and ultimate depository in Switzerland, an EU or EEA member state or in the UK. (vi) The country and securities ratings are based on credit ratings of at least one of the rating agencies – Standard & Poor's, Moody's or Fitch. In addition to the general criteria, further criteria apply. Those criteria vary between securities denominated in Swiss Francs and securities denominated in foreign currency. Details can be found in the "Instruction sheet on collateral eligible for SNB repos" published on the SNB website. |
|---|---|
| Standing facilities: Discretion of central bank on collateral 12 | The SNB can expand the collateral universe at its discretion beyond the current baskets, assuming the additional collateral meets its standards set, e.g., for credit quality and liquidity. |
| Open market operations: List of eligible collateral | See entry for standing facilities |
| Open market operations: Discretion of central bank on collateral 13 | See entry for standing facilities |
Dissemination of operational information: liquidity forecast
| Forecast published? | No |
|---|---|
| Channel(s) | |
| Timing | |
| Remarks |
Dissemination of operational information: open market operations
| Volume and price published? | Yes |
|---|---|
| Channel(s) | Auction announcement: wire services, SIX Repo Ltd electronic trading platform Results: SNB data portal |
| Timing | Repo: (i)Â Â Â Â Price is published at the time auction starts (auction announcement) (ii)Â Â Â Results (volume, allotment) are published on the SNB's data portal at the end of each month with a time lag of 1 month SNB Bills: (iii)Â Â Price (marginal rate) is published on the day following the auction (iv)Â Â Results (volume, allotment, outstanding volume) are published on the SNB's data portal at the end of each month with a time lag of 1 month |
Dissemination of operational information: standing facilities
| Lending facility usage: Channel(s) | Not published |
|---|---|
| Lending facility usage: Timing | |
| Deposit facility usage: Channel(s) | N/A |
| Deposit facility usage: Timing |
Other information dissemination
| Type | (i) Amount of FX intervention (ii) Average of sight deposits in CHF at the SNB (iii) Swiss Average Rate Overnight (SARON) (iv) Interest payments on sight deposit account balances |
|---|---|
| Channel(s) | (i) Accountability report / data portal (ii) SNB website / data portal (iii) SNB and SIX Ltd. Website (iv) Financial results |
| Timing | (i) Yearly / quarterly (with a lag of one quarter) (ii) Weekly (iii) Daily (iv) Quarterly |
1 Describe as well the legal status of the mandate and involvement of government
2 Since 13 June 2019, the SNB has been implementing its monetary policy by setting the SNB policy rate, which took over the function previously performed by the target range for the three-month Libor.
3 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).
4 Minimum exchange rate of CHF 1.20 per euro from 6 September 2011 until 15 January 2015. From 22 January 2015 to 23 September 2022, the SNB imposed negative rates on sight deposit account balances that exceed a given exemption threshold.
5 Announcement of SNB policy rate: since June 2019.
6 For instance, economic and inflation forecasts related to policy decision.
7 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.
8 As of reporting period June 2022.
9 Eligible reserves consisting of sum of banknotes, coins and sight deposits of domestic banks as of reporting period June 2022. Total sight deposits amounted to CHF 740.46 bn as of end of June 2022.
10 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).
11 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.
12 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
13 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.