With more demand for liquidity and less supply, the cashproviding banks were able to achieve higher, i.e. less negative, interest rates, which led to an upward drift in SARON, shown by the black line in Chart 4. These upward pressures on SARON and other short-term money market rates, while anticipated, were not desirable from a monetary policy perspective. Since last November, the SNB has conducted a number of operations to keep secured shortterm money market rates close to the SNB policy rate. Between November 2019 and July 2020, and in particular since the end of March, we conducted several fine-tuning operations in the overnight segment of the repo market. These operations are shown as red diamonds in Chart 4. In a fine-tuning operation, the SNB places so-called ‘cash provider quotes’ directly on the repo trading platform, which any repo market participant can then ‘hit’ if they choose to do so. When the SNB offers funds at a particular quote, cash takers have no reason to accept liquidity at a higher – that is, less attractive – interest rate. With these fine-tuning operations, the SNB can cap repo rates and limit upward spikes. Since July, we have further supported the gradual convergence of SARON towards the SNB policy rate by auctioning one-month funds on the repo platform. These auctions are depicted as blue triangles towards the right-hand edge of Chart 4. Unlike fine-tuning operations, with which the SNB caps interest rates, the SNB’s one-month auctions offer liquidity on a medium-term basis.
impose a negative interest rate on banks’ sight deposits held at the SNB if the deposits exceeded a certain exemption threshold. On 15 January 2015, the SNB discontinued the minimum exchange rate relative to the euro and simultaneously lowered the negative interest rate due to take effect on 22 January to −0.75%. Page 6/13  The role of the interest rate on banks’ sight deposits at the SNB In the years leading up to the Global Financial Crisis a so-called structural liquidity deficit prevailed in the banking systems of many countries, including Switzerland. Since the SNB did not pay interest on banks’ sight deposits at the SNB, banks held as little excess liquidity as possible in the form of sight deposits in an environment of positive interest rates. During this period, the SNB steered money market interest rates via the price and quantity of its daily money market operations, which were conducted in the secured segment of the money market in the form of repo transactions. For instance, if the SNB wished to induce a decline in money market rates, it provided more liquidity and reduced its repo rate. This setup changed with the Global Financial Crisis. Many central banks initially responded to the unfolding crisis by lowering policy rates. Subsequently, they launched asset purchase programmes (‘quantitative easing’) or – as was the case with the SNB – conducted foreign exchange market interventions.