BIS central bankers’ speeches  3  But there are exceptions, and the discontinuation of the minimum exchange rate – a measure that was directly linked to the foreign exchange market – is one such exception. An announcement, or even the slightest hint of an imminent decision to dispense with the minimum exchange rate, would have triggered massive speculation against the SNB. We would then have been forced to, as it was, subsidise this speculation via foreign currency purchases. Incidentally, these same arguments also explain why a gradual exit from the minimum exchange rate or a “gentle” transition to a policy involving some other form of explicit exchange rate linkage (e.g. pegging the Swiss franc to a basket of currencies) was impractical. Such a policy would likewise have opened the floodgates to speculators. There was thus no reasonable alternative to exiting the minimum exchange rate suddenly and completely. We discussed when would be the best time to communicate the decision. Our choice of the morning of 15 January was designed to allow market participants to start from a level playing field when adapting to this undoubtedly challenging new situation. By discontinuing the minimum exchange rate on a weekday when market participation was high, we minimised the risk of some banks and their customers being put at a disadvantage, or of individual participants gaining an advantage.
A structural dynamic factor approach applied to Swiss data”, SNB Working Papers No. 9, 2013, or Drechsel, D. et al. (2015): “How are firms affected by exchange rate shocks? Evidence from survey based impulse responses”, KOF Working Papers No. 371, January 2015. 6  BIS central bankers’ speeches  We have revised our forecast downwards for the current year, from –0.1% to –1.1%. Inflation is expected to reach its low point in the third quarter of 2015, at –1.2%. We anticipate inflation of –0.5% for 2016. As you can see from chart 7, inflation will move back into positive territory only at the start of 2017. These forecasts assume that the three-month Libor remains at –0.75% over the entire forecast horizon, and that the Swiss franc weakens. Our forecasts show that the period of negative inflation is temporary. The SNB’s monetary policy strategy provides for positive inflation rates of below 2% in the medium term. So as long as the inflation rate returns to this range in the medium term, price stability will not be threatened. The important thing is that medium-term inflation expectations remain within a range that is compatible with price stability. While these inflation expectations have declined substantially, they are still in positive territory. This is confirmed in regular surveys by thirdparty providers, as well as in conversations between the SNB’s delegates for regional economic relations and company representatives from all sectors of the economy.