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SNB could cut exemption limit if more easing needed, says Jordan

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ZURICH / Bloomberg

The Swiss National Bank could lower the amount of bank
reserves that are exempt from its negative interest rate if it needs to ease policy further, the central bank’s president said.
“So far we do not plan any change, but of course the exemption threshold is a possible policy instrument,” SNB President Thomas Jordan said in an interview in Shanghai, where he was attending a Group of 20 meeting.
“It is a different mechanism to change the restriction of monetary policy, but of course the combination of negative rates and the size of the exemption threshold in total makes the
impact on monetary policy
conditions,” pointed out Jordan in teh recent interview.
To make the franc less attractive as a haven currency, the SNB has charged banks for sight deposits since January 2015, though there is an exemption threshold of 20 times their minimum-reserve requirements. With the SNB’s deposit rate already at a record low of minus 0.75 percent, economists have debated what steps Jordan and his fellow policy makers may take should the European Central Bank decide to boost stimulus at its March 10 meeting.
While Jordan said on Saturday that central banks haven’t yet run out of ammunition, the SNB has said in the past that there’s a limit to how low a negative rate can be cut because at some point investors will begin to hoard cash to circumvent the deposit rate. Adjusting the threshold for exemptions could be an alternative.
“Both the interest rate and the size of the exemption threshold are policy variables that we have,” Jordan said.
Still, what move the SNB takes next depends primarily on the franc, according to Bloomberg’s monthly survey of economists, published on February 15.
While the Swiss currency traded as low as 1.11997 per euro on February 4, it has since appreciated. Even so, it is far from the levels of a year ago after the SNB abandoned its cap of 1.20 per euro on the franc in January 2015.
The Swiss National Bank is the central bank of Switzerland, and so is therefore responsible for the monetary policy of the nation of Switzerland and also for the issuing of Swiss franc banknotes.

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