Return to positive interest rates: Why reserve tiering?

Andréa M. Maechler / Thomas Moser, Member of the Governing Board / Alternate Member of the Governing Board

Money Market Event, Geneva, 17.11.2022

Since the end of 2020, there has been a resurgence of inflation globally. Confronted with this situation, various central banks, including the Swiss National Bank (SNB), have tightened their monetary policies. The SNB has raised its policy rate twice this year, with the second hike, in September, lifting it back into positive territory.

The switch to a positive rate environment meant that the SNB had to adopt a new approach to implementing its policy in the money market. The approach features two elements: reserve tiering, also referred to as tiered remuneration of reserves, and reserve absorption by way of open market operations.

The new approach takes into account the structural changes that have occurred in the money market since the SNB was last in a positive rate environment. It allows the SNB to keep secured short-term Swiss franc money market rates close to the SNB policy rate, while supporting interbank activity in the Swiss franc money market.

This speech sets out the reasons for adopting the new implementation approach, explains how it works and gives an overview of how it has performed so far.