If the Swiss franc were to appreciate rapidly, the National Bank would react appropriately. Today’s increase in the three-month Libor was generally expected. Why did financial markets anticipate this move? The answer is simple. The moderate increase in the interest rate is compatible with our strategy of making gradual corrections to a very expansionary monetary policy, while taking into account economic recovery. Let me clarify this statement. Economic activity At our monetary policy assessment in mid-September, we addressed the factors indicating an economic improvement in the second quarter. We expected that this trend would strengthen in the second half of the year. The movements in economic indicators over the last three months confirm this scenario. According to estimates by the State Secretariat for Economic Affairs (seco), real GDP in the third quarter exceeded the previous quarter by an annualised figure of 4.3%. With respect to the year-back level, it was up by 2.3%. Together with the GDP figures for the third quarter, seco also presented revised figures for the first two quarters. The new figures are substantially higher than before, even after the considerable increase in the figure for the first quarter that was presented in September. Most observers were surprised by the size of the growth estimate for the third quarter. What is more, the retrospective revisions have considerably modified the perception of the economic situation in the first half of the year.
In this way, we aim to ensure that price stability is not endangered in future. The monetary policy decision The economic and monetary situation has developed in the way we anticipated. The inflation outlook prior to today’s decision was largely in line with the figures presented at the last monetary policy assessment. For 2006, however, we forecast a slightly higher level of inflation to that presented in the last assessment. This is due to revisions made to certain figures that point to a higher rate of utilisation in the economy. In view of this inflation outlook, what is the justification for our decision to increase the target range for three-month Libor by 25 basis points? While we anticipate falling rates of inflation next year, this decline is not relevant in terms of monetary policy. Recent inflation levels of over 1% are probably largely due to the rise in oil prices which began in the first half of 2004. At the time, we decided not to take this increased inflation into account in our monetary policy decisions, due to the fact that its consequences could not be neutralised through monetary policy measures. It seems logical, therefore, not to take account of a decline in inflation attributable to subsiding oil prices, particularly since this drop also results from a statistical effect. A number of inflation components are likely to persist at a low level, even in 2006.