The SNB will continue to enforce the minimum exchange rate of CHF 1.20 per euro with the utmost determination. It is prepared to buy foreign currency in unlimited quantities for this purpose. The target range for the three-month Libor remains unchanged at 0.00–0.25% and the SNB will continue to maintain liquidity on the money market at an exceptionally high level. The SNB has taken these decisions in a context of mixed developments in the global economy. While growth in the United States was surprisingly positive in the fourth quarter, GDP fell in the euro area and in Japan. In Switzerland, growth has slowed significantly in the past year. Added value declined in the fourth quarter in those sectors most affected by exchange rate movements. While the high value of the Swiss franc continues to present enormous challenges to the economy, the minimum exchange rate is having an impact. It has reduced exchange rate volatility and given business leaders a better basis for planning. There are growing indications that the Swiss economy is stabilising. For 2012, the SNB is now forecasting moderate growth, at close to 1%. The situation on the financial markets has also eased a little of late. It remains very uncertain, however, whether the advances made in solving the European sovereign debt crisis will succeed in defusing the situation permanently. Moreover, there is a risk that geopolitical tensions will lead to a further rise in the price of oil.
Though the current liquidity levels in the Swiss franc money market are still extremely high, and interest rates are fluctuating around zero, conditions on the money markets have slowly started to normalize and extremely negative rates have disappeared. This is reflected in the recent increase of the three-month Libor, which can be ascribed to a normalisation of the rate’s risk premium and should therefore not be seen as a change in monetary policy. Though few loans are currently being concluded on the interbank market, the Libor remains an important benchmark for many credit transactions in the economy. Concluding remarks The period of low interest rates in which we live is the outcome of cyclical and secular circumstances which are unlikely to last forever. Even if we accept the “savings glut” hypothesis, the demographical and regional factors to which it refers could soon lose relevance. While the call for deleveraging should prompt increased savings in advanced economies, the demographic forces in the west are likely to have an opposite effect on the supply of savings. Similarly, the maturing of emerging markets in the east should lead to smaller current account surpluses and to a gradual reduction in the build-up of precautionary reserves by public authorities. It is also clear that the increased risk appetite associated with the “Great Moderation” was, at least to some extent, based on over-optimistic assumptions.