The number of individuals affected by short-time working was rising fast at the beginning of the year, and unemployment is increasing at a regular pace. This trend is likely to persist in the next few months since the leading indicators of labour demand are falling sharply. Nevertheless, it is to be hoped that the signs of improvement observed abroad will be gradually transmitted to the Swiss economy. From the second quarter, the decline in exports is likely to slow down. However, growth figures will probably remain negative over the next few quarters due to the weakening in domestic demand as well as the reduction of inventory levels. For 2009 as a whole, the Swiss National Bank (SNB) continues to forecast a reduction in GDP of between 2.5% and 3%. These figures are still relatively moderate by comparison with other countries since Switzerland benefits from the broad diversification and relative flexibility of its economy. Even so, I wish to stress that the risks attached to our forecast are clearly skewed to the downside. Changes in monetary and financial conditions How have monetary and financial conditions developed since our last assessment in March? Let us begin by looking at movements in interest rates on the money and capital markets as well as currency movements on the foreign exchange markets. On the money market, three-month Libor moved down, but not as far as we would have liked. Its decline was checked by the level of risk premia, and it currently stands at around 40 basis points.
A cautious combination of a negative repo rate and bond purchases So how have we chosen to act, and what have the results been, so far? Up to this point, we have kept to changes to the repo rate and repo rate path, and purchases of government bonds. As it has not been completely certain how these would function in practice, there has been reason to proceed cautiously. We have combined several measures over the past year to make the combined effect sufficiently great. Over a number of stages, we have cut the repo rate and/or the repo rate path, at the same time as we have announced and initiated bond purchases in amounts that have been increased in several stages (see Figure 4 and Figure 5). In addition, in our communication, we have emphasised our preparedness, if necessary, to also rapidly increase monetary policy stimulus between the ordinary monetary policy meetings held every second month. In March 2015, we did exactly this – we took a decision on new monetary policy stimulus between two ordinary meetings. The repo rate cuts have largely worked As regards the repo rate cuts, so far we have been able to observe that lending rates followed to a normal extent, while deposit rates have stopped at zero for everybody except some larger companies.