This reflects extreme movements in oil prices, which reached USD 145 a barrel in July 2008, only to fall to USD 35 in December of the same year. The temporary nature of fluctuations in inflation was correctly anticipated, as evidenced in our previous inflation forecasts. Since it takes time for the impact of monetary policy to feed through, it would have been futile to attempt to counter these movements. The path of inflation in the near term will be largely dictated by recent movements in oil prices and the associated base effects. Inflation will already return to positive figures from the end of this year. This is mainly due to the base effect linked to the USD 35 low reached by oil prices in December 2008. Inflation will tend to decline thereafter, despite the recovery in growth. In fact, economic activity will remain subdued and will return only gradually to normal. Inflation will nevertheless remain positive throughout 2010. Assuming that our monetary policy remains unchanged, our new forecast shows that inflation will begin to increase again from the beginning of 2011, to reach 2% in the first half of 2012. Our expansionary monetary policy cannot be maintained indefinitely without incurring inflation risks. Considerable uncertainty remains attached to this inflation forecast. Global economic developments could be less favourable than I described in the first section of my remarks. The financial crisis could reappear. Monetary policy decision The inflation outlook has not changed since the September assessment.
An appreciation of the Swiss franc against the euro would run counter to the relaxation in monetary conditions brought about through the interest rate channel. This is why the SNB will continue to act decisively to prevent any excessive appreciation of the Swiss franc against the euro. An assessment of monetary conditions can be misleading if it is based on prices, which, like currently the libor, have reached a bound. For this reason, an assessment based on quantities – money and credit – is particularly important in the current circumstances. The monetary base has increased substantially since October 2008, when the financial crisis entered a new phase following the collapse of Lehman Brothers. We supplied the interbank market with sufficient liquidity to meet burgeoning demand in a climate of uncertainty, in order to prevent any increase in money market rates. Since then, precautionary base money demand has declined and we have reabsorbed liquidity accordingly. The monetary base has thus fallen by 28% compared to the peak recorded in April 2009. The level of sight deposits is, however, still almost ten times higher than before the crisis. There is thus a risk of excessive money creation once confidence is restored. Monetary conditions should not be judged in terms of banking sector liquidity, but rather on the basis of the liquidity available to households and firms – i.e. the monetary aggregates. M3 growth, which had been modest for a long time, has accelerated. In October, it reached an annual rate of 7.7%.