The second line of defence, then, is prudential rules and macroprudential tools aimed at hindering excessive indebtedness, enhancing financial system resilience, and mitigating procyclicality. Capital flow management tools are the third line of defence and are intended to support other aspects of economic policy if the need arises. In formulating a new economic and prudential policy framework in the near future, we must try to make the interactions between the various components most conducive to achieving the desired results. This applies to fiscal policy, monetary policy, decisions made in the labour market, and decisions designed to safeguard financial stability. In this context, it should be borne in mind that monetary policy is unique in that it can have a very rapid response time, as its instruments can be applied at short notice. This means that monetary policy can have the last move and can consider the decisions made in other policy areas. Furthermore, experience shows that monetary policy is most effective in the long run if central banks are independent in applying monetary policy instruments but have clear objectives decided by elected representatives and are then accountable for their decisions after the fact. The framework for the interactions among the various components of economic policy must not limit this independence. This does not change the fact that, for these interactions to have maximum effectiveness, there must be a clear understanding of which factors will determine the decisions of each party.
The end of the minimum exchange rate has major repercussions for the Swiss economy, and it was by no means an easy decision for the SNB. Yet this is not the first time that the Swiss economy has had to react to shocks and changes in the international environment, and the experience was often painful. The example of the watch industry shows that even a severe crisis can be overcome. Unfortunately, this example is not readily transferable to other export industries. Many companies currently find themselves compelled to seek cost reductions and efficiency gains. The economic outlook depends to a great extent on global economic developments. In its latest monetary policy assessment, the SNB is projecting that momentum in the global economy will pick up again. This should cushion the impact of the exchange rate shock somewhat, and allow Switzerland to return to positive growth in the second half of the year. While inflation has dropped well into negative territory, as things currently stand, a sustained price decline - or, indeed, a deflationary spiral - is not to be expected. Overall, the Swiss franc is currently significantly overvalued. Monetary policy is geared towards this challenging set of circumstances, and is guided by the SNB's willingness to take an active role in the foreign exchange market and apply negative interest rates. This twopronged approach is designed to ease the upward pressure on the Swiss franc. However, in the current climate there is, regrettably, no easy solution that would absorb all external disruptions.