This shows that marginal costs – the costs of an additional unit of Swiss franc liquidity – are relevant for transmission on the interbank market. Although trading activity on the money market remains lower than before the financial crisis, it has revived somewhat. For instance, turnover on the  2  BIS central bankers’ speeches  secured money market, in particular on the Swiss franc repo market, has risen since the introduction of negative interest. As intended, negative interest has been transmitted from the money market to the capital market. The lower interest rates for all maturities have widened the traditional interest rate differential against other countries again somewhat. Previously, they had narrowed substantially. On the money and capital markets, the interest rate differential is now greater than it was without negative interest, in particular for short-term interest rates. Chart 4 shows the path of interest rates for three-month loans on the Swiss franc and euro money markets, together with the differential. The greater interest rate differential helps to ensure that Swiss franc investments are less attractive than investments in euros and other currencies. Moreover, the rise in the interest rate differential has increased the cost of hedging foreign currency positions on the forward exchange market, which is an additional factor dampening Swiss franc demand. Although the interest rate differential has risen, it is still considerably below the long-term average, particularly since interest rates abroad decreased more substantially during the financial crisis than those in Switzerland.
For a more detailed analysis, see Banco de España (2020), “Recent developments in the most important Latin American banking systems for Spanish banks”, Box 2, “Report on the Latin American economy. Second half of 2020”, Analytical Articles, Economic Bulletin, 4/2020. 8 For a stress test analysis of the 61 largest banks in Latin America, see Annex 4 of the IMF’s Regional Economic Outlook (2020), Pandemic Persistence Clouds the Recovery. 9 See A. Werner, A. Ivanova and T. Komatsuzaki (2021), Latin America and Caribbean’s Winding Road to Recovery, IMF blog. 5  First, in addition to the human cost in lives, the effects on poverty and income distribution have been very severe.10 Indeed, during 2019, bouts of political tensions and social unrest in several countries, partly related to this situation, fuelled economic uncertainty; this in a region where numerous elections are due to take place in the coming quarters. A second challenge is that posed by shrinking fiscal space following the increase in government debt in the region during 2020, positioning it as the emerging region with the highest government debt-to-GDP ratio and, where debt refinancing is concerned, leaving it highly vulnerable to changes in investor sentiment. Against this background, monetary policy is supported by the accommodative policies of the main developed economies and by low inflationary pressures.