We cannot allow the Swiss franc to appreciate further. Hence, we must continue with our current policy, in particular as interest rates are already around zero. 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. By setting a minimum exchange rate, we have opted for a simple and clear policy, to which we are fully committed. For precisely these reasons, this policy has been absolutely credible to the markets. Before concluding, let me elaborate on two potential side effects which are often discussed in the context of our current monetary policy. On the one hand, it is argued that the significant increase in liquidity since August 2011 may trigger inflation risks in the longer term. Given the current economic situation, however, expanding the supply of liquidity was a necessary monetary policy response. There is currently absolutely no risk of inflation in Switzerland. First, headline inflation turned negative in October 2011 and continued to decline through the end of the year. It is assumed to fall even further in early 2012. Second, neither our inflation forecasts nor the medium-term inflation expectations from our surveys of households and companies show any signs of  2  BIS central bankers’ speeches  inflation risks. Consequently, there is no necessity whatsoever for the SNB to reduce the level of liquidity for the time being.
In such a scenario, demand for perceived safe financial assets would fall in general, and for the Swiss franc in particular. However, as downside risks are currently far more likely to materialize, the SNB will enforce the minimum exchange rate with the utmost determination. Under these exceptional circumstances, it is a necessary measure to fulfill our mandate. BIS central bankers’ speeches  3