The basic intention is to stabilise inflation around the target and at the same time avoid unduly large fluctuations in production and employment. Consequently the Riksbank chooses to disregard economic shocks with effects on inflation that can be assumed to be only transitory. Moreover, there may be grounds for heeding the expected course of events beyond the regular target horizon. There may be a case for adjusting the repo rate immediately if there are already strong reasons for expecting a marked increase or decrease in inflation directly after the two-year horizon. Another point to remember is the Riksbank’s function of promoting a safe and efficient payment system; problems in this context may call for interest rate adjustments even though the inflation target is not threatened. Such adjustments may be needed both to prevent potential risks from building up in the payment system and to moderate effects of problems that have already arisen. Departures of this type from the rule of action should, however, be made restrictively. When the clarification was presented at the beginning of 1999, the Executive Board made a point of the fact that deviations from the normal rule are to be stated clearly and justified. The Riksbank’s rule of action and some of the aspects I have mentioned have direct counterparts in current laws and their prefatory documents. The Riksbank Act states that "The objective of the Riksbank’s operations shall be to maintain price stability. In addition, the Riksbank shall promote a safe and efficient payment system."
As with the StabFund, we are convinced that – here too – we must take these risks in order to be able to avert other, even greater risks. Extraordinary times call for extraordinary measures. The financial market crisis has confirmed our belief that the SNB must have a strong capital base and a broad range of monetary policy instrument to ensure its capacity to act at all times. Chart 1. Effective exchange rate for Swiss franc Export-weighted against 24 trading partners, nominal, 1.2007=100 115 112.5 110 107.5 105 102.5 100 97.5 95  2007  2008  2009  Source: SNB Markets Analysis Platform  Chart 2. EUR/CHF and exchange rate volatility Implied volatility EUR/CHF 3M  EUR/CHF (rhs)  % 15  1.65  12.5  1.6  10  1.55  7.5  1.5  5  1.45  2.5  Jul  Aug  Sep  Oct  Nov  Dec Jan 09 Feb  Mar  Apr  May  Jun  1.4  Sources: SNB Markets Analysis Platform, Bloomberg  4  BIS Review 77/2009  Chart 3. Swap spreads Swap spreads Pfandbriefe Swap spreads financial  Swap spreads industrial Swap spreads utility  bp 300 250 200 150 100 50 0 –50  Jul  Aug  Sep  Oct  Nov  Dec Jan 09 Feb  Mar  Apr  May  Jun  Sources: SNB Markets Analysis Platform, Credit Suisse  Table 1.