Swiss National Bank broadened negative interest rate policy by reducing the class of entities that were formerly exempt. This meant deposits related to government, such as pensions. Now they'll have to pay interest to the central bank.
How many ways can you say, "idiots?"
The Swiss National Bank, formerly a relatively obscure institution, is now rapidly rising up the ranks of the list of Biggest Policy Maker Idiots of All Time.
It abruptly ended its EURCHF peg in January, wrecking innocent brokerage firms in the process who were just custodians of customer accounts. (They had no position.)
And why did it end that peg? Your guess is as good as mine, but there is ZERO inability for a central bank to credit users of its own currency. Hong Kong's been doing it for a long time against the dollar. Saudi Arabia, too.
Now the SNB is expanding its negative rates program like that other idiot central bank the ECB (which still sits atop the Policy Maker Idiot rankings). Negative rates are a tax--a confiscation of money--so what is stimulative about that?
Maybe a) they believe this will weaken the Swiss franc and; b) "need" the cash to pay out their traditional dividend payments to the Swiss cantons. (But that's like taking from the cantons and giving it back.)
Suffice it to say none of this makes any sense in a normal world, but in the Bizarro world that we live in today, it all makes perfect sense.
2 comments:
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
"And why did it end that peg?"
they thought if they removed the peg and simultaneously moved the policy rate a half a point MORE NEGATIVE than the ECB rate that the currency would tank against the EUR and they would make a small fortune on their EUR holdings for the SNB and derivative entities....
Makes perfect sense (to them...)
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