An update of our monetary strategy became necessary. In 2000, we decided to abandon our traditional monetary targeting in favour of a new monetary policy concept based on an inflation forecast. 2  BIS Review 70/2004  Overall, despite difficult times, our policy has been a success. The annual average rate of inflation in Switzerland over the last 25 years amounts to 2.8%, one of the lowest in the world, and price stability has provided Switzerland with an important comparative advantage: the so-called Swiss interest rate bonus, which means that nominal and real interest rates are lower in Switzerland than in the rest of Europe. Strategy towards monetary stability Is there any secret about Switzerland’s success in preserving price stability? I do not think so. Switzerland, as a small and open economy that is deeply integrated in trade flows, has always felt that price stability was a necessary ingredient of competitiveness. In the almost 100-year history of the Swiss National Bank, fighting inflation has been a permanent objective, and there were only rare occasions of disagreement between the government and the Bank on monetary issues. Actually, central bank independence had been a tradition in Switzerland even before it became fashionable elsewhere. In my country, most politicians consider monetary stability as a kind of common good which should escape partisan disputes. The fact that our federal government plays only a limited role in economic policy also supports the view that monetary decisions should be left to technicians.
Indeed, the notable reduction in business activity further to the restrictions associated with the state of alert prompted a much sharper decline in non-financial corporations’ operating revenue than that in the payments they must meet. The latest Central Balance Sheet Data Office figures give an idea of the severity of this shock to firms’ liquidity. There was a strongly adverse impact on these agents’ profits already in Q1, despite the fact that the sharp contractions in activity and operating revenue associated with the declaration of the state of alert only affected the last two weeks of this quarter. The reduction in the return on assets for the overall sample of firms was so significant that it pushed ROA below the cost of borrowing, a development not seen since 2014. The information on bank lending shows firms resorting to this source of financing to cover a large portion of these liquidity requirements. Specifically, the outstanding balance of bank financing granted to Spanish non-financial corporations rose to 8.7% in May after having shrunk by 1.1% year-on-year in February. And the preliminary data for June would suggest that this trajectory has been holding in the most recent period. Yet for financial institutions to have been able to meet such a notable increase in firms’ applications for credit, the contribution of the support measures launched at both the European and national levels has been decisive.