One of the challenges involved in replacing the Libor with an overnight rate such as SARON is how to determine forward rates that would, for example, allow the calculation of quarterly payments on contracts. At the moment, the derivatives market is not liquid enough to provide a prospective forward rate (i.e. one that is known in advance). This is why the working group, at its meeting last week, opted for a backward-looking calculation method based on the average of daily SARON rates over the period concerned. As co-chair of the NWG, the SNB is supporting the process by providing coordination at national level and encouraging dialogue at international level. Ultimately, though, only the market participants themselves can ensure a successful transition. It is thus critical that they become involved, keep themselves informed about the working group’s recommendations, and put them into practice. Participation in the working group is open to all those operating in  Page 8/9  the market. I should add that an information session on the working group’s latest activities and on future challenges will be taking place tomorrow in Geneva. 7 Before finishing, I would like to emphasise that the SNB retains its ability to steer interest rates even without the Libor. For instance, it is currently doing so by means of the negative interest rate on the sight deposits which the banks hold at the SNB. The disappearance of the Libor or the transition to another interest rate would change nothing in that respect.
On the other hand, some evidence appears to suggest that digitalisation in the retail trade leads to faster pass-through – that is to say, it increases the responsiveness of prices to shocks affecting the economy, such as the strong appreciation of a nation’s currency. Studies show that the growth of online trade in recent years may have helped to almost double the speed of price adjustments in the US retail industry. 4 Switzerland too has seen a trend towards faster price adjustments over the last few years. 5 Thus, shocks such as strong appreciation or depreciation of the Swiss franc could feed through to inflation more rapidly in the future. The SNB is therefore analysing the repercussions of digitalisation in depth, in order to understand the impact on inflation as thoroughly as possible and ensure that it is able to take action where necessary. 1 For a discussion about the causes and implications of low inflation, cf. Constâncio, Vítor (2017) ‘Understanding and overcoming low inflation’; remarks at conference on Understanding inflation: lessons from the past, lessons for the future? Frankfurt am Main, 21–22 September. 2 BAK Economics AG and Swiss Association of Distance Selling. 3 This term describes the impact of booming online trade on the traditional retail trade as well as on economic growth and inflation. 4 The costs to companies of price changes (‘menu costs’) are generally lower for online traders as they only have to modify their prices online; traditional traders on the other hand have to produce new labels, brochures, etc. Cf.