The dash-dotted green curve shows the inflation outlook published after the interest increase of September, which was based on a constant three-month Libor of 1.75%. The red line is clearly lower than the green one. This is partly due to falling oil prices and partly results from the dampening effect of today's interest rate increase. The level of inflation expected in 2007 is 0.4%. However, as is evident from the inflation dynamic, the effect of a 2.00% interest rate is still expansionary. Continuation of previous monetary policy With today’s decision to increase the three-month Libor by 25 basis points, we are adhering to our previous monetary policy course of gradual normalisation. In so doing, we are pursuing the goal of continuing to ensure long-term price stability. If the economy performs as expected, we will further pursue this strategy. Observed inflation December 2006  BIS Review 123/2006  3  Inflation forecast of September 2006 with Libor at 1.75% and of December 2006 with Libor at 2.00%  The National Bank’s 100-year anniversary Ladies and Gentlemen, before concluding, I would like to say a few words on a completely different topic: The Swiss National Bank will celebrate it's 100-year anniversary in 2007. We are happy that we can celebrate this anniversary at a time when Switzerland’s economy is in good shape. And it is also with a certain sense of pride that we can look back upon a long phase of price stability. We will celebrate our anniversary in a festive, yet modest way.
Almost all components of demand continue to grow, albeit at a more moderate pace. Private consumption will benefit from the healthy improvement in disposable income. Equipment investment is being stimulated by the high rate of utilisation of production capacity and the favourable business outlook in many industries. Residential construction is likely to see a measure of calm. Yet increased investment in commercial and industrial building may offset this development to some extent. The somewhat weaker global economic development – though still favourable overall - will probably continue to have a positive impact on exports. For 2007, we expect overall GDP growth of about 2%. Monetary developments Allow me to explain developments in the financial markets and the monetary aggregates. Two topics merit particular attention: the development of credit and money supply and the exchange rate. In addition to long-term interest rates and exchange rates, loans – among other things – play an important role when changes in key interest rates are transmitted to the economy. What information can we derive from the development of lending activity? Loans are registering constant growth. Mortgage loans, which account for the great majority of all bank loans, have grown at a rate of more than 5% since 2003. This is a reflection of the clearly expansionary monetary policy at that time. The growth rate of mortgage loans has gradually slowed, however, and is now slightly below 5%. This is nevertheless still a high growth rate. Other loans, however, are witnessing stronger growth and are currently expanding by 6%.