We have tested numerous tools including overnight reverse repurchase operations, term reverse repurchase operations and term deposit facilities to ensure that, when the time comes, lift-off can be managed smoothly. As the FOMC has communicated, the primary tool will be interest on excess reserves (IOER), with overnight reverse repurchases as a supplemental tool to be used as needed to help ensure a firm floor under short-term interest rates. BIS central bankers’ speeches  3  Once normalization has begun, two important questions will be: How fast will it proceed? And how high will short-term rates ultimately need to go? How fast the normalization process will proceed depends mainly on two factors: how the economy evolves and how financial market conditions respond to movements in the federal funds rate target. If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly to achieve the appropriate restraint on financial market conditions. In contrast, if financial conditions tighten unduly, then this will likely prompt us to go much more slowly or even to pause for a while. Our intention will be to move short-term interest rates in a manner to generate the set of financial market conditions that we deem to be most consistent with achieving our employment and inflation objectives. The question of how high short-term rates will ultimately need to go before we approach a neutral monetary stance is a difficult question, which is hard to pre-judge for a couple of reasons.
These three most important elements are dependent on developments abroad, international financial markets, and global demand for commodities. The Swiss franc exchange rate, by comparison, does not play a decisive role. There is thus no contradiction between having a strong Swiss franc and a large current account surplus. Nor is the surplus a suitable measure for assessing Switzerland's share in global imbalances. It is much more the case that Switzerland and its extensive level of direct investment abroad contributes significantly to balanced global economic growth. SNB monetary policy is focused on ensuring price stability. In so doing, it takes due account of economic developments. To fulfil this mandate, the SNB must secure appropriate monetary conditions. The current account surplus does not play a role in monetary policy. In an open economy like Switzerland, however, sizeable exchange rate fluctuations have a strong impact on production and prices. In the current environment, and with interest rates close to zero, the minimum exchange rate is therefore the correct monetary policy instrument. The SNB will continue to enforce it with the utmost determination. BIS central bankers’ speeches  1