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The Swiss national Bank (SNB) will take further steps to curb the Swiss franc. The regulator will soon lower the Deposit rate, which in June replaced the three-month LIBOR (London interbank offered rate) as the key. To such conclusion analysts surveyed by Bloomberg.
Frank is currently at the highest level against the Euro in two years. This increase is due to threats of trade wars in the world and the likelihood of recession in the Eurozone. The situation forces the SNB to re-concentrate on the long struggle against a strong national currency that threatens its own exporters.
After the change of character in the key rate has maintained at minus 0.75 percent. It’s still the lowest level in the world, although negative interest rates also put Denmark, Sweden, Japan and the ECB. But clients continue to bring money in Swiss banks, so in troubled Europe the rate is only 0.4%, i.e. only slightly higher. If the ECB goes for further declines, which do not exclude the experts, then Switzerland will have to respond.
The Swiss went on the rejection of LIBOR because of the uncertainty in the future rates. It is calculated as the average rate of interest at which banks in London lend to other banks through the placement of their deposits. About ten years ago the system appeared in the center of a major scandal over manipulation. The investigation showed, the major banks have passed on distorted information influencing LIBOR to increase profit from trades or give the impression that they are more creditworthy. In particular, the Swiss UBS eventually paid more than billion Euro fine for their illegal actions. Against this background, the British control over observance of norms of behavior in financial markets (FCA) has promised to keep rates only until the end of 2021.
The system, which replaced the LIBOR in Switzerland, resembles that adopted by the Federal reserve and the Bank of England. It is specially designed for the country and based on the indicator SARON, which is used on the Zurich platform SIX. The major difference between LIBOR is that SARON takes into account not only transactions, but also binding quotes on the Swiss REPO market (market transactions in the form of a purchase of securities with obligation of resale, which is one of the forms of lending).
Despite the presence of SARON, the regulator has decided to use their own indicator to prevent the possibility of the impact of a third party. However, the national Bank may indirectly manage SARON through the new interest rates on deposits. If it will drop, banks will have to shift the responsibility further, and this is immediately reflected in SARON. Thus, the regulator would pre-announce that will change both indicators. Analysts the question arises, how NSB cope with the situation, if the key rate will be positive, but they recognize what to think about it now.
Earlier in July it was reported that Swiss banks have started to lend at a negative rate. However, these conditions are only available to other banks, insurance companies and investment funds, i.e. institutional investors.
In the course of this year, the Russian Central Bank twice lowered its key interest rate by 25 basis points. According to the results of the recent declines, it is 7.25 percent. This led to the fact that rates on deposits in Russia has declined.
Video, photo All from Russia.