Swiss National Bank dragged to annual loss by interest rate hit

ZURICH, Jan 9 (Reuters) - The Swiss National Bank posted an annual loss of 3 billion Swiss francs ($3.54 billion) for 2023 on Tuesday, as a result of interest rate hikes designed to combat inflation.

Switzerland's central bank made a loss of 8.5 billion francs from its Swiss franc positions, provisional figures show, largely due to the higher interest rates paid to banks which lodge money with it overnight.

The SNB increased its policy interest rate twice in 2023 to 1.75% as it sought to combat inflation, but this led to it paying out more to holders of sight deposit accounts.

Although the amount of money lodged overnight fell last year as the SNB sold foreign currencies, there was still 463 billion francs held in sight deposit accounts at the end of 2023.

The overall 3 billion franc loss came despite the SNB making a profit of around 4 billion francs on its foreign currency positions, and a valuation gain of 1.7 billion francs from its gold holdings.

Although the performance was better than the record 133 billion franc loss a year earlier, the SNB said it would not be making a payment to the Swiss central or local governments, nor pay a dividend to investors.

After 10.5 billion francs was paid to its currency reserves, and taking into account last year's negative distribution reserve of 39.5 billion, the SNB said it expected its running net loss for 2023 to be around 53 billion francs.

The exact breakdown of the SNB's profit and losses will be published when it publishes definitive numbers on March 4.

Still, the loss will not have any impact on monetary policy, said UBS analyst Alessandro Bee, who estimated the SNB paid around 2 billion francs a quarter due to interest rate payments.

"The first priority of the SNB is its monetary policy and its balance sheet is purely there to support it," said Bee.

With the Swiss inflation easing and pressure on manufacturers from the recent strength of the Swiss franc, Bee expects the SNB to cut rates first in June, before two more rate cuts of 25 basis points in the second half of 2024. ($1 = 0.8475 Swiss francs) (Reporting by John Revill; Editing by Linda Pasquini and Alexander Smith)