The Swiss export industry is understandably especially keen to see that the franc is not exposed to any further revaluations against the euro. Sudden and precipitous adjustments to the exchange rates are also undesirable from a monetary policy perspective. The unrelenting rise in oil prices surprised many market analysts. Since the beginning of 2004, the dollar price of West Texas Intermediate crude oil has climbed by more than 50%. In real terms, however, the ascent was not nearly as sharp as in earlier oil price shocks. In Europe, the hike was further cushioned by the erosion of the dollar. The reasons behind the bullish oil prices are manifold. The main trigger, however, is likely to have been the structural increase in demand coming from the emerging economies, particularly from China and India. In addition, supply flexibility is currently quite weak, as investment spending in the drilling, transportation and storage of oil was somewhat neglected in the years when oil prices were low. Potential geopolitical risks also push up the prices. Last but not least, raw materials - such as gold traditionally - are playing an ever greater role in international investors’ asset allocation, which also tends to generate an increase in demand. That notwithstanding, the influence of financial players on the price of oil should not be overestimated. The development of the long-term futures prices of crude oil indicates that the price spike was primarily triggered by a sustained increase in consumer demand.
The weakening of the US currency resulted in a further decrease in the dollar’s share of foreign currency reserves. Recently, in an effort to prevent the dollar’s share from dropping too low and with a view to rebalancing, we bought dollars again on a number of occasions. Furthermore, as part of the 2004 strategy, the proportion of government bonds was also reduced in favour of other borrowers’ bonds. The required minimum rating for bond investments was lowered from A2 to BBB, thus covering the entire “investment grade” range. Corporate bonds have now also been added to the National Bank’s investment universe, albeit only those of foreign companies. Currently, roughly 4% of both foreign currency reserves and free assets are invested in corporate bonds. The credit quality of all our investments is still very high. Borrowers with the top rating AAA account for over 70% of the investments. Close to 20% bear the AA rating. The remaining investments have an A or a BBB. The average residual maturity (duration) of all bonds held by the National Bank was kept at 4-5 years. The first investments in equities issued exclusively by foreign companies will be made at the beginning of 2005. The addition of equities and corporate bonds is likely to improve the degree of diversification of the investments and will contribute to the achievement of slightly higher returns in the medium term. The main difference between the investment structures of foreign currency reserves and free assets is their currency profile.