We were aware that discontinuing the minimum exchange rate would have significant effects on the outlook for the economy and inflation. However, as the Governing Board, we must be prepared to make decisions that may have negative effects in the short term. We are convinced that postponing a decision which was ultimately unavoidable would have caused far higher costs in the long term. Review and appraisal of the minimum exchange rate As mentioned before, the minimum exchange rate of CHF 1.20 per euro was the SNB’s key monetary policy instrument for almost three and a half years. I will therefore begin my brief appraisal of this instrument in the summer of 2011, shortly before it was introduced. That summer saw a renewed deterioration in the outlook for the global economy, which was only hesitantly recovering from the worst recession since the 1930s. In addition, at that time, the European debt crisis was escalating again. In the US Congress, a protracted battle about raising the debt ceiling was under way. Given these developments, uncertainty on the financial markets was increasing very rapidly, and demand for Swiss francs soared. The Swiss franc appreciated very sharply against all major currencies, including the US dollar. In August 2011, the Swiss franc was, by any measure, massively overvalued. The SNB began by expanding liquidity on the money market to an extent that was historically unprecedented. However, the effect of this liquidity expansion on the exchange rate was only temporary.
I will begin by talking about the prominent issues related to the discontinuation of the minimum exchange rate. This will be followed by our present assessment of the Swiss economy and price developments and an explanation of our current monetary policy. Alongside our willingness to intervene on the foreign exchange market as necessary, negative interest on SNB sight deposits plays an important role in monetary policy. I would therefore like to look at this subject in greater detail today. Rationale for discontinuing the minimum exchange rate Let us begin with the reasons for discontinuing the minimum exchange rate. In the course of 2014, there were growing signs that a US exit from a highly expansionary monetary policy was drawing closer. In the euro area, by contrast, there was increasing evidence that monetary policy would be eased further. Against this backdrop, the euro depreciated considerably against the US dollar. These diverging monetary policy stances in the major currency areas affected the Swiss franc in two different ways. Like the euro, the Swiss franc weakened against the US dollar. Against the euro, however, it gradually approached the minimum exchange rate of CHF 1.20. At that time, the weakening of the euro had not yet cast doubt on the sustainability of the minimum exchange rate. Consequently, at the monetary policy decision in mid-December, we made the decision to leave monetary policy unchanged. Shortly after our monetary policy decision, the economic crisis in Russia escalated.