In August 2011, in an attempt to counter the exceptionally strong Swiss franc, the SNB narrowed the target range for the Libor to between 0.0% and 0.25%, aiming to keep it as close to zero as possible. It also took steps to expand banks’ sight deposits significantly. 1 These measures were successful up to a point, however in the light of ongoing uncertainty on the financial markets and more bad news from the euro area, upward pressure on the Swiss franc remained high and became more intense still at the beginning of September 2011. The SNB therefore decided to provide the foreign exchange market with clear guidance in the form of a minimum exchange rate for the franc against the euro. On 6 September 2011, it announced that it would no longer tolerate a EUR/CHF exchange rate below CHF 1.20. This exceptional measure enabled the SNB to take a stand against an acute threat to the Swiss economy and to counter the risk of a deflationary trend emanating from the massive overvaluation of the Swiss franc. The minimum exchange rate was introduced as a temporary, emergency measure in a time of extreme turbulence. The franc remained high in the period that followed, yet deflation risk was held in check. Moreover, the minimum exchange rate bought Swiss companies – especially exporters and industries facing competition from imports – some time in which to plan their next steps in a very difficult operating environment.
Interest rate and exchange rate developments in recent weeks suggest that our monetary policy measures are gradually gaining traction. Economic outlook By introducing the minimum exchange rate, the SNB moderated the risks and adjustment costs to which the Swiss economy was exposed and bought it some time to adjust to a stronger franc. We are aware that the discontinuation of the minimum exchange rate will mean that Switzerland has some difficult times ahead. The higher Swiss franc exchange rate – and especially the speed of Swiss franc appreciation since the discontinuation of the minimum exchange rate – is particularly challenging for exporters and industries facing competition from imports. BIS central bankers’ speeches  5  In 2014, the Swiss economy recorded year-on-year growth of 2%. This increase was slightly above long-term potential growth and reflects the robust state of our economy. The exit from the minimum exchange rate has led to a deterioration of economic conditions. We thus expect a much more modest expansion of real economic output this year of just under 1%. A noticeable weakening in the economy may be expected, particularly in the first half of the year. In the short term, significant underutilisation of production capacity may be expected and unemployment is likely to increase moderately. There is of course a particularly high degree of uncertainty attached to such forecasts. For one thing, they will depend on how the Swiss franc exchange rate evolves in the coming months. For another, it is not certain how international conditions will develop.