For this reason, it is not always easy to determine when, and how strongly, it will influence the Swiss franc exchange rate. However, if all other factors remain the same, there is less demand for investments in Switzerland – and thus for Swiss francs – when Swiss interest rates decline. BIS central bankers’ speeches  3  But I am also aware that negative interest rates do not constitute business as usual. In addition to the interest rate differential, nominal interest rates will themselves also return to normal. For this to happen, economic conditions abroad will need to improve to the point that interest rates in Switzerland can rise without causing the Swiss franc to strengthen further. This is currently not the case. At the most recent monetary policy assessment, we decided to leave the target range for the three-month Libor unchanged at between −1.25% and –0.25%. The interest rate on sight deposits at the SNB remains at –0.75%. Despite a slight depreciation, the franc is currently still significantly overvalued. We are convinced that negative interest rates and the SNB’s willingness to intervene as required in the foreign exchange market will make investments in Swiss francs less attractive; both of these factors serve to weaken the Swiss franc. The provisional inflation forecast in chart 4 is also based on a depreciation, along with a Libor rate of –0.75%. The chart shows that, over the short term, inflation will be lower than forecast in June, owing to the lower oil price.
Internal SNB studies have shown that short-term changes in demand from neighbouring countries have an especially strong effect on exports; in the case of demand from emerging economies,  1  D. Fauceglia, A. Lassmann, A. Shingal and M. Wermelinger, Backward Participation in Global Value Chains and Exchange Rate Driven Adjustment of Swiss Exports, study on behalf of the State Secretariat for Economic Affairs SECO, 2015. A study by the World Bank has revealed that exchange rate elasticity of industries has decreased worldwide. Closer global integration of the value chain was also cited as the main reason for this development (S. Ahmed, M. Appendino and M. Ruta, Depreciations without Exports? World Bank Policy Research Paper, 2015). 2  BIS central bankers’ speeches  however, long-term developments play a more significant role than they do in the advanced economies. This is why, in recent years, the export industry has increasingly orientated itself towards these emerging economies, where growth has also been considerably stronger. The greater importance of these regions was particularly beneficial during the financial crisis because demand from emerging economies fell much less, and recovered more quickly, than demand from the traditional export markets of Europe and the US. What support can the Swiss economy currently expect from global demand? In the monetary policy assessment two weeks ago, the SNB stated that the US and the UK saw robust economic development in the first half of the year. The muted recovery in Europe continued as well, due partly to the favourable exchange rate situation.