Philipp Hildebrand: The Swiss National Bank’s view of international financial markets against the background of trends in the United States Introductory remarks by Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 12 December 2003. *  *  *  The past year was a turbulent one for the international financial markets, which were essentially influenced by trends in the US. During the first half of 2003, market developments were shaped by economic and deflation fears as well as by the war in Iraq. In this environment, equity markets reached an annual low in March. In June, bond market yields fell to their lowest level. The second half of the year saw an economic recovery in the US, which is now spreading to other economic regions as well. Capital markets Long-term yields on Swiss paper rose by approximately 60 basis points from their low in June to roughly 2.7%, approximately tracking yields in the euro area. In both cases, yields followed the US market very closely, albeit with modest fluctuations (see graph 1). Under the present economic conditions, the interest rate environment in Switzerland is still viewed as attractive by consumers. The high level of new fixed-rate mortgages is an indication of this sentiment. The higher Swiss yields reflect the improved economic outlook and not inflation expectations, which are modest given that there is still pronounced underutilisation of capacities. In contrast to capital market yields, money market yields were decidedly stable.
In addition, foreign direct investors have placed more importance on factors other than just the exchange rate alone. In managing exchange rate policy, no amount of exchange rate manipulation would satisfy the interests of all parties at all times. Indeed, it is a stable and fundamentally sound exchange rate system that will best serve the overall economic interests of the country. This will continue to be the objective of our exchange rate policy. Ladies and Gentlemen, Dr. Yilmaz Akyüz’s lecture today would provide an international perspective on managing financial instability and shocks in a more globalised world and touches on some of the issues I have mentioned. Although the regional financial crisis occurred more than six years ago, the issues it raises are not history. They are still very relevant and important. Emerging economies need to continue to evolve approaches and solutions on how best to manage the vulnerabilities and to promote and preserve stability. In this endeavour, there is potential to not only consider what individual economies can do but also the opportunities for regional arrangements or regional solutions. As the region becomes increasingly more integrated in terms of trade and investment flows, the potential for this will be  2  BIS Review 8/2004  greater. The desired outcome is to achieve stability, which in turn, will contribute to the overall stability of the international monetary system and thus, enhance the prospects for shared global prosperity. BIS Review 8/2004  3