With respect to the secular trend toward lower interest rates, two observations are in order. First, I do not think the current situation bears the seeds for a return to the inflation rates of the seventies, despite the fears that are sometimes expressed. As argued, I thus do not see the reasons for a significant increase in the inflation premium. Second, as to the other defining element of the secular trend, lower real rates, it is harder to make definitive statements. The ultimate drivers of this development and their respective roles have not been unambiguously clarified. For this reason, it is not possible to argue convincingly that the secular downward trend has run its course or that it is likely to revert. This is the main unknown in our equation. What is certain, however, is that the crisis-induced cyclical downturn will eventually be reversed. At some point, economies will return to more robust growth paths. Interest rates and monetary policy will accompany this change in circumstances. Thus, making sense of our assessment of the likely future path of interest rates hinges on our assessment of the economic outlook. Let me be more specific here. For the global economy, the SNB forecasts the continuation of a gradual, albeit subpar recovery. In the near term, indicators for the US, Europe and China suggest that global growth should gradually gain in momentum and become more broad based (chart 16). Nevertheless, the recovery is likely to remain subdued.
It already provides for an automatic revision of the situation in the event that the National Bank's earnings should permanently exceed the expected level. Inflation Forecast December 2002 with Libor at 0.75%  Annual average inflation in %  BIS Review 73/2002  2002  2003  2004  2005  0.7  0.7  0.9  1.6  3