At the end of the new forecasting horizon in the third quarter of 2007, inflation would stand at 2.6%. The lower long-term inflation forecast suggests that there is currently more room for manoeuvre in maintaining an expansionary monetary policy course. 4. Exchange rate  The dollar has plummeted since October. It has lost 7.9% vis-à-vis the Swiss franc. Notwithstanding the sharp fluctuations of the dollar, the franc has remained virtually unchanged against the euro. The depreciation of the dollar has a direct impact on the Swiss economy in that it undermines the price competitiveness of the export industries. Moreover, a weak dollar also exerts an indirect influence by clouding growth prospects in Europe, our largest sales market. The appreciation of the franc has tightened monetary conditions. At the same time, the weaker dollar has a dampening effect on import prices and, consequently, on inflation prospects. 5. Continuation of expansionary monetary policy  I will now come to my concluding remarks. The inflation forecast shows that the process of normalisation of monetary policy has not yet ended. In light of my comments it should nevertheless not be difficult to understand our decision to leave the three-month Libor rate at 0.75%. Since inflationary pressure is expected to ease in the long term, there is no need to take a further step toward a normalisation of interest rates at this point in time. In addition, the stronger franc has already resulted in more restrictive monetary conditions.
With our decision to keep the three-month Libor rate on hold, we are adhering to our current monetary policy course: we are making use of our monetary policy leeway to support growth without jeopardising long-term price stability. Every forecast and every decision is fraught with uncertainty. Should unexpected events delay economic recovery or push up the Swiss franc sharply, we shall take appropriate action. For such cases, the Swiss National Bank keeps all its options open. 2/3  Observed inflation December 2004  Inflation forecast on September 2004 with Libor at 0.75% and of December 2004 with Libor at 0.75%  3/3