It is naturally difficult to establish the point at which price movements of this kind need to be considered as excesses. In the past, long periods of rising prices were always followed by corrections. The hefty reaction of risk markets to the tapering debate can be read as a sign of the instability of certain asset prices. In Switzerland, for instance, the low interest rates have stimulated activity in the mortgage and real estate markets, where, for a number of years now, we have seen considerable momentum which can only be partially explained by movements in fundamental factors. As a result, imbalances have built up. For example, mortgage volumes have grown significantly faster than GDP for many years, as can be seen in chart 9. The SNB has issued repeated warnings about the risks for financial stability associated with these developments. This is the background to the Federal Council’s activation of the countercyclical capital buffer (CCB) at the beginning of this year, upon the proposal of the SNB. The CCB has been in force since the end of September and its primary aim is to increase the resilience of the banking system against these risks and to combat excessive credit growth. Since low interest rates can be expected to persist in Switzerland for some time yet, we are keeping a very close watch on developments in the mortgage and real estate markets. Waning motivation for reform measures: Lower interest rates mean more favourable refinancing costs for banks, companies and governments.
European financial markets calmer thanks to monetary policy If you take a look at chart 1, you can follow the movements in both the euro/Swiss franc exchange rate and the average risk premium for the government bonds of five peripheral euro area countries (Italy, Spain, Greece, Portugal and Ireland). The risk premium is drawn on an inverted scale, in other words, a movement downwards signifies a higher risk. This chart serves as an illustrative example for two developments. On the one hand, it shows that uncertainty in the euro area has decreased greatly over the past twelve months. At the time of the last Money Market Event in Geneva, the risk premium was almost 1,200 basis points; it is now below 400. On the other hand, the chart illustrates the fact that the upward pressure on the Swiss franc has abated. Following a long period last year when the exchange rate stuck closely to the minimum exchange rate of CHF 1.20, it moved away in January and, since May, has fluctuated within a relatively narrow range of CHF 1.22–1.26 per euro. BIS central bankers’ speeches  1  Here, the situation has calmed in two respects. In order to reduce the risk of the euro area collapsing, the European Central Bank (ECB) resorted to an unconventional measure in late summer 2012, the outright monetary transactions programme. Market participants were persuaded, and since then the risk premium for peripheral economies in Europe has declined steadily. What is remarkable is how persistent this trend has been.