In addition, the yield on ten-year Confederation bonds attained a new historical low. This shows that the demand for safe investments remains high. Over the past few months, as before, movements in the Swiss franc mainly reflected the changing risk assessment of market participants. Following the ECB’s announcement in early September that it would purchase unlimited quantities of bonds of crisis-hit euro area countries under certain conditions, the upward pressure on the Swiss franc lessened. The M1, M2 and M3 monetary aggregates, which measure the amount of money held by households and companies, have increased substantially over the past few months. For this reason, some fear that we are heading for high rates of inflation. However, this is not the case. The inflation forecast for Switzerland continues to be low. At present, the inflation rate is still in negative territory. Inflationary pressure remains minimal because of the strong Swiss franc and the relatively unfavourable global growth outlook. Moreover, the underutilisation of production capacities in Switzerland is restraining the inflation outlook. Surveys on inflation expectations show that households and companies continue to assume that prices will remain stable, also in the medium term. Given the current low interest environment worldwide, enforcement of the minimum exchange rate is necessary to ensure suitable monetary conditions in Switzerland. Global uncertainty will persist for the foreseeable future and drive demand for secure investments.
2  BIS central bankers’ speeches  As a result the exchange rate situation will remain fragile, despite the calmer environment that has come about as a result of the measures taken by the ECB. However, the very low interest rates around the world are also associated with risks. The longer a low interest rate phase persists, the greater the potential danger of speculative price developments and misallocations. Investors searching for yields could place increasing amounts in real estate, and this can lead, in particular, to a rise in real estate prices and thus, to a distorted pattern of incentives. Momentum in the domestic residential mortgage and real estate markets remains exceptionally strong. Mortgage lending continues to grow briskly compared to the economy as a whole. In addition, real estate prices, already at a high level, continued to rise. As a result, risks for financial stability increased further. My colleague, Jean-Pierre Danthine, will give you an assessment of the situation in the financial sector from the point of view of the SNB. Monetary and investment policy The minimum exchange rate provides us with new challenges for our monetary policy but also for our investment policy. I would therefore like to close with a few words on our foreign currency investments. As you know, in the months May to August, in particular, we had to purchase large quantities of foreign currency in order to enforce the minimum exchange rate. Consequently, the SNB’s foreign currency investments have significantly increased.