As of July 18, the Swiss National Bank (SNB) reported total sight deposits of CHF 475.3 billion, up from CHF 464.1 billion. Domestic sight deposits increased to CHF 444.8 billion from CHF 434.9 billion. This growth in sight deposits is due to financial institutions looking for safety from negative interest rates. After the recent rate cut, the Swiss Average Rate Overnight (SARON) dropped to between -0.03% and -0.04%. As a result, keeping reserves with the SNB has become a more appealing choice.

Market Reactions to Rate Cut

The increase in sight deposits directly reflects financial institutions reacting to the central bank’s recent rate cut. This indicates that there is extra cash in the system and confirms that the policy is successfully pushing short-term rates into negative territory. This liquidity will likely influence the market in the coming weeks. For traders involved in interest rate derivatives, this information supports the idea that Swiss rates will stay low. SARON futures are already indicating a negative rate environment for the rest of the year, with some traders even considering a further cut by December. We think that strategies benefiting from steady or falling short-term rates, like selling Swiss franc interest rate futures, are well-positioned. This monetary policy approach may put pressure on the Swiss Franc. Historically, periods of rate cuts tend to weaken the franc. For example, after the rate cut in June 2024, the EUR/CHF exchange rate rose from 0.95 to over 0.98. Therefore, using options to bet on a higher USD/CHF or EUR/CHF exchange rate could be a good idea.

Impact on Swiss Equities

The low-interest-rate environment is likely to support Swiss equities. Lower borrowing costs can enhance company earnings and make stocks more appealing than cash, which is now earning negative returns. The Swiss Market Index is already up nearly 6% since the last policy easing. We believe selling out-of-the-money put options on the index is a smart way to collect premium. Create your live VT Markets account and start trading now.

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