Swiss National Bank (SNB) recently disclosed an annual loss of 3 billion Swiss francs ($3.54 billion) for the year 2023. This financial setback was primarily attributed to the impact of interest rate hikes implemented by the SNB to counter inflationary pressures.
Reasons Behind the Annual Loss:
The Swiss National Bank faced an 8.5 billion franc loss from its Swiss franc positions, mainly due to the higher interest rates paid to banks lodging money overnight. Despite a reduction in overnight lodged money in 2023
sight deposit accounts still held a substantial 463 billion francs at the year’s end.
SNB’s Monetary Policy and Inflation Combat:
In response to rising inflation, the SNB increased its policy interest rate twice in 2023, reaching 1.75%. However, this move led to increased payouts to holders of sight deposit accounts.
Detailed Financial Breakdown:
The annual loss included the 8.5 billion franc loss from Swiss franc positions. On a positive note, the SNB made a profit of approximately 4 billion francs on its foreign currency positions and gained 1.7 billion francs from its gold holdings.
Impact on Government Payments and Dividends:
Despite the improved performance compared to the previous year, the SNB decided not to make payments to the Swiss central or local governments and withheld dividends for investors.
Currency Reserves and Running Net Loss:
After paying 10.5 billion francs to its currency reserves and factoring in the negative distribution reserve of 39.5 billion from the previous year, the SNB expects a running net loss of around 53 billion francs for 2023.
Future Monetary Policy Predictions:
UBS analyst Alessandro Bee reassured that the loss would not influence monetary policy
estimating the SNB paid around 2 billion francs per quarter due to interest rate payments. With Swiss inflation easing
Bee predicts rate cuts in June and two more cuts of 25 basis points in the second half of 2024.
Conclusion:
While the annual loss poses financial challenges, the SNB remains committed to its primary focus on monetary policy. The decision not to make government payments or pay dividends underscores the institution’s dedication to supporting its balance sheet in pursuit of monetary stability.
FAQs
1. How did the SNB’s interest rate hikes contribute to the annual loss? The SNB’s increased policy interest rate in 2023 led to higher payouts to banks lodging money overnight
resulting in an 8.5 billion franc loss from Swiss franc positions.
2. What were the contributing factors to the SNB’s overall loss despite making a profit on foreign currency positions? The loss was primarily attributed to the higher interest rates on sight deposit accounts
offsetting profits from foreign currency positions and valuation gains from gold holdings.
3. Why did the SNB decide not to make payments to the Swiss central or local governments? Despite improved performance compared to the previous year, the SNB opted not to make payments to the government
prioritizing its commitment to monetary policy and financial stability.
4. How does the SNB plan to address its running net loss for 2023? Taking into account payments to currency reserves and the negative distribution reserve from the previous year
he SNB anticipates a running net loss of around 53 billion francs for 2023.
5. What are the future predictions for the SNB’s monetary policy? Analyst Alessandro Bee expects rate cuts in June, with two additional cuts of 25 basis points in the second half of 2024
driven by easing Swiss inflation and economic considerations.