ZURICH, July 5 (Reuters) – The Swiss National Bank on Monday launched its first reverse repo operation since the global crisis began, adding a new policy tool to its efforts to drain excess liquidity created by its massive currency interventions.
The central bank, which said it will take cash from banks for one week at a rate of 0.09 percent, SNBAUCT1, announced it would launch reverse repos at its policy meeting in June, without giving a date.
It has previously used reverse repos only on very rare occasions to fine-tune market rates. The SNB has also increased the issuance of its own debt via SNB bills with maturities of up to 6 months in order to mop up the tens of billions of francs it has pumped into the market to stem the currency’s rise against the euro.
The massive currency interventions have flooded the market with cash, driving the 3-month Swiss franc LIBOR — the SNB’s targeted interest rate, which is set by markets — down to record lows of around 0.07 percent. CHF3MFSR=
The SNB dropped a pledge to intervene in the currency market at its monetary policy assessment in June, saying deflation risks have largely disappeared thanks to the ongoing economic recovery.
The LIBOR crept up to a fixing of 0.11 percent on Friday and traders said the reverse repo should help to bring the rate back to the SNB’s target of 0.25 percent slowly but steadily.
“Money market rates are ticking up,” one trader said. “The SNB will be taking a cautious approach though.”
Banks’ sight deposits with the central bank — an indication of excess money in the market — shrank from a high of above 100 billion francs at the end of May to some 55 billion francs at the end of last week.
At the SNB’s quarterly meeting in June, SNB board member Jean-Pierre Danthine attributed the falling sight deposits to the increased issuance of SNB bills.
The SNB only publishes data on the volumes of SNB bills outstanding at the end of a month in its monthly statistical bulletin. The next bulletin is due on July 21.
Sight deposits were usually around 5 billion francs before the SNB launched its ultra-loose monetary policy to combat a deep recession and deflation risks.
At current levels, banks hold some seven times the amount required under the central bank’s minimum reserve rules.
(Reporting by Sven Egenter; editing by John Stonestreet)