SNB's sight deposit holdings rise by second-highest level in 12 months

By John Revill

ZURICH (Reuters) - The Swiss National Bank's sight deposit holdings increased again last week as the central bank intervenes in currency markets to weaken the Swiss franc, while also taking steps to support the economy during the coronavirus pandemic.

Total sight deposits - money that commercial banks park overnight with the SNB - rose to 627.165 billion Swiss francs (521.76 billion pounds) from 620.455 billion francs in the previous week.

The increase was less than the 11.6 billion francs rise the week before but was still the second-biggest jump in the last 12 months.

Rises in sight deposits are usually seen as a proxy for the SNB's currency interventions, because the central bank credits the sight accounts of commercial banks with newly created francs in exchange for foreign currency.

The SNB, which declined to comment on Monday, has pledged to step up its interventions to stabilise the safe-haven franc, which has been sought by investors as a secure asset as stock markets have tumbled.

The franc, whose high exchange value hurts Swiss exporters, has stabilised around 1.055 versus the euro in recent days, suggesting the SNB's interventions are working.

But economists said another reason for the sight deposits' rise could be the SNB making extra liquidity available to commercial banks through its COVID-19 refinancing facility (CRF) so that credit does not dry up.

"The SNB supports the economy with ample liquidity but it's not clear how much it supports exports through interventions and how much supports the domestic economy through the other measures," said Alessandro Bee, a UBS economist.

Maxime Botteron, an economist at Credit Suisse, said the increase could also come as the SNB deploys liquidity operations to prevent the Swiss interbank overnight interest rate (SARON) diverging too far from the central bank's target rate of minus 0.75%.

He said it was difficult to estimate what the main factor was behind last week's changes.

"It could be fewer FX interventions and/or banks not using much of the CRF or the SNB not doing much repo operations," he said. "But at this stage, it's not possible to estimate FX interventions and we don't have information on the other operations."

(Reporting by John Revill; Editing by Hugh Lawson)