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-interest-bearing. 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 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)

Overview of key features

Key policy rate SNB policy rate
maturity (days) Out to next MPA
Operating target Short-term Swiss franc money market rates
maturity (days) 1
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 In the current system of operating a negative interest rate on sight deposits at the SNB and interventions in the foreign exchange market, as necessary, there are no regular open market operations.
The quantity of reserves is primarily the result of foreign exchange transactions.
functions
maturity (days)
regular interval
frequency
Overall frequency As required
Discretion left to operational desk
Key policy signals via
announcement
keynote tender
standing facility
other

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 (twice a year)
Policy announcement and documents Announcement of SNB policy rate, interest on sight deposits and if needed further policy measures
Explaining policy decisions Press release, media conference
Dissemination of minutes (timing / media) N/A
Content of minutes N/A
Publication of forecasts Conditional inflation forecast
Publication of projected path of policy rate 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 17.1 bn
Required reserve as % of GDP 2.49%
Actual reserves CHF 489.3 bn
Actual reserve as % of GDP 70.97%

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) Sight deposits non-banks, Treasury account, 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) + 50 bps
Maturity O/N
Access limited by/to (1) limit by the SNB, (2) a custody cover account, (3) 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 N/A
Form N/A
Pricing method N/A
Maturity N/A
Access limited by/to N/A
Function(s) N/A

Open market operations: repo or reverse repo

Name/Type Repo and Reverse repo
Maturity 1 week to 1 year
Frequency As needed
Pricing method Auction (fixed rate tender)
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 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 > Repos).
The criteria that must be met in order for securities (debt certificates) to be eligible for SNB repos include the following:
(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) or the European Economic Area (EEA) 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 or an EU or EEA member state.
(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 The SNB can expand the collateral universe at its discretion beyond the current baskets, assuming the additional collateral meets its standards set, eg, 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 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 website
Timing Repo:
(i)     Price is published at the time auction starts (auction announcement)
(ii)    Results (volume, allotment) are available on the SNB’s website
SNB Bills:
(iii)   Price (marginal rate) is published on the day of payment
(iv)   Results (volume, allotment, outstanding volume) are published on the SNB’s website

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 / income from negative rates charged on sight deposit account balances
(ii) Average of sight deposits in CHF at the SNB
(iii) Swiss Average Rate Overnight (SARON)
Channel(s) (i) Accountability report
(ii) SNB website
(iii) SNB and SIX Ltd. Website
Timing (i) Yearly
(ii) Weekly
(iii) Daily