This annual expansionary fiscal impact poses a challenge to stabilisation policy in general and monetary policy in particular. Underlying real expenditure growth has exceeded mainland GDP for the last 4 years. Nominal growth in 2002 is 7 per cent. (The deflator, mainly wages, is 4½ per cent). Measured as a share of GDP, public expenditure is growing rapidly. In 2002 alone, this share will increase by some 2½ percentage points. According to the Revised National Budget, an increase in expenditure of 7 per cent this year will lead to an estimated growth in public sector consumption of only 1½ per cent. The rest will be spent on government transfers and wage growth. This is consistent with close adherence to the new fiscal guidelines. The new guidelines for fiscal and monetary policy were introduced simultaneously, and are not independent of each other. Fiscal policy is geared towards the phasing in of oil revenues; monetary policy has been given a more explicit responsibility for macroeconomic stabilisation. Monetary policy is to be oriented towards low and stable inflation. The inflation target is set at 2½ per cent. Monetary policy affects the economy with considerable and variable lags. The key rate is set on the basis of an overall assessment of the inflation outlook two years ahead. If it appears that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased.
BIS central bankers’ speeches  As I mentioned before, in addition to improvements in the existing Libor interest rates, the FSB also proposes that alternative benchmark interest rates be developed. In Switzerland, alternative interest rates for very short-term Swiss franc transactions already exist. An example of these on the secured money market is SARON,2 which is the basis for the interest rate curve on the Swiss franc repo market. On the unsecured market we have the TOIS3 fixing, which is related to transactions in the area of call money and is used for interest rate derivatives. However, reforms were also necessary for the TOIS fixing. Consequently, new standards have been in place since 1 October. These are in line with international requirements and have resulted in a number of enhancements, including improvements to supervisory structures and codes of conduct. For these benchmark rates, too, the underlying transaction volume is currently very low. Foreign exchange benchmarks I will now turn my attention to benchmarks on the foreign exchange market. On the international financial markets, currencies are traded around the clock. There are no final rates for any given day. Given this situation, benchmarks on the foreign exchange market provide numerous investors, such as investment funds or asset managers, with a basis which they can use for uniform valuation of their portfolios. One of the best-known benchmarks is the WM/Reuters fix, which is set daily at 4.00 pm, London time; it is calculated as the median of actual foreign exchange transactions conducted within the period of one minute.