ZURICH, Oct 10 (Reuters) - The amount of commercial bank cash held overnight with the Swiss National Bank fell by 30 billion Swiss francs ($30.07 billion) last week, data on Monday showed, illustrating how the central bank is tightening monetary policy by reducing market liquidity.
Total sight deposits, which include other deposits on sight in Swiss francs, declined to 639.332 billion francs from 669.585 billion francs in the previous week.
Last week's drop was the second biggest decline in sight deposits - cash of commercial banks held with the central bank - since weekly records began 11 years ago.
It follows a 77.5 billion franc drop the week before and likely represents the SNB selling bills and repos into the market as part of its strategy to raise the Swiss Average Rate Overnight (SARON) towards the central bank's policy rate of 0.5%, economists said.
The SNB raised its policy rate to 0.5% last month as it sought to battle inflation in Switzerland.
It declined to comment on Monday about its actions.
Credit Suisse economist Maxime Botteron said the decline in sight deposits was likely the result of liquidity-absorbing operations by the SNB such as the sale of repos and of SNB Bills.
As the Swiss franc weakened last week, it was also possible the SNB had been selling some of its foreign currencies to maintain its value, which has been helpful limiting the extent of imported inflation.
Governing board member Andrea Maechler said again last week the SNB was prepared to intervene with foreign currency purchases or sales if the franc became too weak or too strong.
"I expect that the SNB continues to absorb liquidity from the market by issuing more bills and fine-tuning with more repos if the SARON remains too far below the policy rate," said Karsten Junius, an economist at J.Safra Sarasin.
"At 0,445% the SARON today is not that far away from the official policy rate such that further interventions through bills or repos don't seem that urgent," he said.
($1 = 0.9977 Swiss francs)
Reporting by John Revill; Editing by Robert Birsel