UPDATE 2-Swiss National Bank steps up liquidity provision

* SNB cuts minimum overnight rate to 0% from 0.5%

* Central bank says will step up open market operations

* Changes designed to align rates with SNB policy rate (Adds details)

By John Revill

ZURICH, June 29 (Reuters) – The Swiss National Bank will step up its liquidity providing operations and cut the interest rate on overnight funding for banks, it said on Monday.

The central bank will conduct additional open market operations – in the form of repo auctions – “as required”, and will also reduce its special rate for liquidity shortage financing.

The SNB is reducing the lower limit on its overnight funding to a minimum of 0%, from a current lower limit of 0.5%.

“As before, the special rate will be calculated as the SNB policy rate plus a surcharge of 50 basis points,” the central bank said.

“However, the lower limit for the special rate is to be reduced to at least 0%, down from the current level of at least 0.5%,” it said.

The change, effective from July 1, is intended to bring the overnight funding rate more into line with the SNB’s policy rate of minus 0.75%, used by the central bank to ease appreciation pressure on the Swiss franc.

The liquidity-shortage financing facility allows Swiss banks to bridge unexpected, short-term liquidity bottlenecks.

The SNB is meanwhile stepping up its repo auctions to help steer the Swiss overnight interest rate (SARON) closer to its target of minus 0.75%.

Several times recently the SNB has used repo auctions to manage the market rate when it threatened to rise above the SNB’s policy rate, analysts have said.

The latest changes were introduced after the SNB reviewed the interest rates for its standing facilities following the introducing of its COVID-19 refinancing facility (CRF).

So far, 15.5 billion francs ($16.36 billion) in emergency bridging credits have been handed out to 130,000 companies hit by the downturn.

Banks fund the payments with liquidity from the SNB, with the loans secured by government guarantees.

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