However, the situation remains challenging for large sections of the economy – even at the current exchange rate, the Swiss franc is still very strong. We expect it to weaken over time, and fall back to a level more in line with its economic fundamentals. As the data show, economic activity in Switzerland slowed significantly in Q3 2011. Exports, in particular, fell noticeably. In addition to the strong Swiss franc, the general global economic outlook has deteriorated and downside risks prevail. Given this difficult environment, we remain firmly committed to defending the minimum exchange rate of CHF 1.20 per euro. This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday. We will not tolerate any trading below the minimum rate in the relevant interbank market. To enforce this policy, we are prepared to buy foreign currency in unlimited quantities if necessary. Moreover, we stand ready to take further measures if the economic outlook and the risk of deflation so require. To explain the rationale behind the SNB’s current monetary policy in more detail, let me briefly outline our assessment of the global economic situation, as well as the risks for the Swiss economy. Subdued global economic outlook and substantial downside risks In our global baseline scenario, the outlook remains – overall – subdued. Economic growth will continue to be driven by emerging markets.
On the other hand, a long period of very low interest rates may lead to imbalances in the domestic credit and real estate markets, which may pose serious risks for financial stability. We are well aware of these risks and are analyzing them very carefully. However, due to the exceptional monetary policy situation, interest rates cannot readily be increased to address such threats. In other words, at the current juncture, monetary policy cannot react to these imbalances with conventional monetary policy instruments. Therefore, the Swiss Government is due to decide soon upon the introduction of so-called macroprudential instruments that can be used – if necessary – to mitigate potential credit and housing market distortions. Conclusion The outlook for the global economy remains subdued. This, together with the persistently strong Swiss franc, is weighing on economic activity in Switzerland. Although some indicators have pointed to a slight stabilization recently, we project that the Swiss economy will grow only weakly over the next few quarters. The degree of uncertainty regarding the growth outlook remains unusually high, also by historical standards. Downside risks – in particular stemming from a further escalation of the European debt crisis – are substantial. If these were to materialize, economic activity in Switzerland would suffer a much more pronounced slowdown than just described. Despite this rather gloomy overall picture, we should not overlook the potential for a more optimistic development. For instance, if the European authorities were to credibly commit to a sustainable solution soon, existing uncertainties would be reduced substantially.