With the recently approved initiative which essentially requires the federal government to run balanced budgets, the government will have to reduce the deficit to less than one billion Swiss Francs in 2001 by strictly controlling expenditures. Modest economic recovery began in 1997 and annual GDP growth is expected to be in the 1.5 to 2.0 percent range for both 1998 and 1999. No systematic use is made of fiscal policy to stimulate the economy. Most of the funds will be spent in the construction sector to renovate public infrastructure. The primary objective of the SNB's policy is price stability.
Monetary policy is conducted through open market operations.
The discount rate is used by the SNB only as a signal to the public. Since the latter years of the 1990-1996 economic stagnation, the SNB has sought to prevent further appreciation of the Swiss Franc by accelerating growth of the money supply. The high franc had been seen as one of the main reasons for the weak performance of exports. Money supply growth slowed significantly during 1997, due in large part to the weakening of the franc. In the mid and long term, the SNB does not follow any exchange rate policy, and the Swiss Franc is not pegged to any foreign currency.