This acceleration is attributable to loans not secured by mortgages, which have been growing since April. Mortgage loans grew at a rate of over 5% in April. There are still no signs of any credit crunch in the survey on bank lending conditions conducted regularly by the SNB. The survey even provides initial indications of a possible trend reversal. During the financial crisis, a number of banks had reported a slight tightening in their loan conditions. However, in the first quarter of 2010, a few banks (for the first time) reported an easing. We continue to observe a considerable increase in loan volumes for residential mortgages. This increase, along with movements in real estate prices, represents a risk that demands the full attention of the SNB. My colleague, Thomas Jordan, will discuss this topic in greater depth. 2  BIS Review 85/2010  Development of the SNB’s balance sheet as a consequence of monetary policy In my following remarks, let me focus on the extraordinary development of the SNB’s balance sheet. As is the case at other central banks, the balance sheet has undergone a considerable expansion and change in its composition since the beginning of the financial crisis. By May 2010, it had nearly tripled in size to over CHF 300 billion. This extraordinary development in the balance sheet is a direct consequence of monetary policy. The SNB had lowered interest rates sharply during the financial crisis, but by the spring of 2009, the traditional interest rate instrument was practically exhausted.
The SNB is now reaping the benefits of having continuously increased its allocation to provisions in previous years. This gave it the room for manoeuvre it needed for measures in times of crisis. The higher allocation to provisions decided on recently has further strengthened the SNB’s capital base. The SNB has sufficient equity capital to withstand even large losses. In the long term, a large part of the liquidity that has been created is excess liquidity. As my colleague, Jean-Pierre Danthine, will explain, the SNB has the necessary instruments at its disposal to withdraw this liquidity. Inflation forecast chart I would now like to comment on the new, conditional inflation forecast in more detail. The (dashed) red curve on the chart represents the new, conditional inflation forecast. It covers the period from the second quarter of 2010 to the first quarter of 2013 and shows the future inflation development on the assumption of the three-month Libor remaining constant at 0.25% over the entire forecasting horizon. For purposes of comparison, the (dash-dotted) green curve shows the inflation outlook published in March, which was also based on the assumption of a three-month Libor of 0.25%. The new forecast shows unchanged inflation prospects. However, new data have led to a slight upward revision in the inflation forecast in the short term, so that inflation arrives at nearly 1% in the second quarter of 2010.