In a turbulent economic landscape marked by inflationary pressures, the Swiss National Bank (SNB) reported an annual loss of 3 billion Swiss francs ($3.54 billion) for the fiscal year 2023. The financial setback was primarily a result of deliberate interest rate hikes implemented by the central bank in its commitment to combat inflation and maintain economic stability.
The provisional figures disclosed by the SNB outlined an 8.5 billion franc loss from its Swiss franc positions. This significant loss was largely attributed to the higher interest rates paid to banks holding overnight deposits. In a bid to address mounting inflation concerns, the SNB opted for two policy interest rate increases in 2023, ultimately reaching a rate of 1.75%. However, this strategic move inadvertently led to increased payouts to holders of sight deposit accounts, contributing to the substantial financial loss.
Despite a decrease in the volume of money lodged overnight, primarily due to the SNB’s sale of foreign currencies, sight deposit accounts still held a considerable 463 billion francs at the close of 2023. The overall loss of 3 billion francs contrasted with the SNB’s profits of approximately 4 billion francs on its foreign currency positions and a valuation gain of 1.7 billion francs from its gold holdings. While this performance marked an improvement from the previous year’s record loss of 133 billion francs, the SNB announced that it would not make payments to the Swiss central or local governments, nor pay dividends to investors.
Allocating 10.5 billion francs to its currency reserves and considering the negative distribution reserve of 39.5 billion from the preceding year, the SNB projected its net loss for 2023 to be around 53 billion francs. Definitive numbers detailing the breakdown of the SNB’s profits and losses are expected to be published on March 4.
Despite the notable financial setback, UBS analyst Alessandro Bee underscored that the loss would not impact the SNB’s monetary policy. Bee estimated that the SNB paid approximately 2 billion francs quarterly in interest rate payments. Emphasizing the primary focus on monetary policy, Bee highlighted that the SNB’s balance sheet is a tool designed to support its overarching monetary policy objectives.
As Switzerland witnesses signs of easing inflation and manufacturers grapple with challenges arising from the recent strength of the Swiss franc, Bee anticipates strategic adjustments in the SNB’s approach. He projects that the SNB will implement rate cuts, with the first anticipated in June, followed by two more rate cuts of 25 basis points each in the latter half of 2024. This forward-looking strategy aligns with the SNB’s commitment to proactively address economic challenges and uphold a robust monetary policy framework.
