The Swiss National Bank (SNB) can lower its sub-zero interest rates even further, said National Bank President Thomas Jordan.
In an interview with newspaper Blick, Jordan affirmed the ongoing need for a deposit rate of minus 0.75 percent along with a pledge to intervene in currency markets, if necessary. He further added that franc remains highly valued. The central bank of Switzerland had the tools to act, said Jordan, should economic conditions deteriorate.
“We always have the possibility of lowering rates further. We have already gone quite far, but still we’ve got the necessary room to maneuver,”
The Blick quoted Jordan as saying on the weekend.
“And we can, if necessary, expand the balance sheet further via interventions.”
Currently, the interest rates of the SNB are the lowest of any major central bank that is designed to keep the pressure off franc. The currency is regarded as a safe haven at the times of market uncertainty as a strengthening franc depresses the inflation rate in the country.
Earlier this month in Washington, Jordan made comments to the same effects as the rough translation states him as saying,
“If we come to the conviction that it is necessary to fulfill our mission, then, of course, we are prepared to use our monetary policy instruments as well.”
— IMF (@IMFNews) April 20, 2019
If a bank keeps negative interest rates, the depositors are required to regularly keep money with the bank instead of earning returns on deposits.
Typically, interest rates are above 0% which means when you put money in the bank, you get at least what you deposited and then some more interest payments. But with negative interest rates approach, the rates are below 0% so the depositor would receive less cash at the end of the year than they actually put at the beginning of the year.
As for why central banks aim for this move, banks keep excess reserves with the central banks and with negative interest rates, national bank pushes banks to explore profitable lending opportunities instead of keeping money idle with the central bank.
This puts pressure on prices and lifts inflation from the low levels. Moreover, any change in rates impacts the money supply in an economy.
Earlier this year, in January, new research reported that when central banks put rates below zero, it can have bad effects on the economy.
By pursuing the policy of making rates below zero could shrink the economy rather than grow it as negative interest rates destroy the profitability of the banks, especially those that rely on customer deposits to make loans.
— Max Keiser, tweet poet. (@maxkeiser) April 22, 2019
Central banks’ efforts to steer the economy, more often than not are fraught with peril. If interest rates are too low, inflation can become a problem that can slow down the economy. With central banks being dominant in managing the economies, they possess monopoly power.
Here, as Bitcoin proponent Max Keiser says, peer-to-peer currency, Bitcoin is of great importance given its deflationary nature and limited supply that makes it more valuable.