In some quarters, central banks are even judged to have a decisive influence on financial market prices. Insofar as it allows monetary policy objectives to be met, this is of course, from a central bank perspective, not unwelcome. Ultimately, the aim of all monetary policy measures is to ensure the effective transmission of monetary policy stimuli to the economy. This applies especially in exceptional times such as those we have experienced in recent years, marked by modest and fragile economic and price developments worldwide. 8  Significance for the implementation of monetary policy With the deployment of unconventional measures, implementation of monetary policy has become considerably more challenging. 9 This also applies to the SNB. First and foremost, we needed to gain a deeper understanding of the markets and refine our analytical tools. We have put a great deal of effort into these areas over recent years, as I will now illustrate with a few examples. Challenges in implementing negative interest  Turning to the implementation of negative interest first. As you know, at the beginning of 2015, the SNB started charging interest of –0.75% on sight deposits held by banks and other financial market participants at the SNB. There are a number of challenges in implementing negative interest rates, three of which I will briefly outline here. First, the potential for interest rate reductions further into negative territory is limited by the effective lower bound. This is determined, among other things, by the cost of holding cash.

This measure was called ‘yield curve control’. For a comprehensive appraisal of unconventional monetary policy measures, cf. Borio, C. and A. Zabai (2016), Unconventional monetary policies: a re-appraisal, BIS Working Papers, 570, pp. 2–9. The SNB publishes a conditional inflation forecast that can also influence financial market participants’ interest rate expectations and therefore can also be regarded as a form of forward guidance. Filardo, A. and B. Hofmann (2014), Forward guidance at the zero lower bound, BIS Quarterly Review, March 2014. Page 3/8  Using negative interest rates, the central banks have, to some extent, reactivated the interest rate instrument, by taking certain reference rates below zero. Since negative interest rates reinforce the expansionary impact of quantitative easing measures, some central banks introduced both measures in combination. Currently, several central banks are using negative interest rates, including the euro area, Japan and Switzerland – although at different conditions and with different features. The SNB’s negative interest rate is primarily aimed at maintaining the traditional interest rate differential to the rest of the world, in order to make Swiss franc investments less attractive. The interest burden increases as soon as the SNB supplies the banking system with additional liquidity, especially through further foreign exchange market interventions. The negative interest rate and the SNB’s willingness to remain active in the foreign exchange market are thus two mutually reinforcing measures, which are having the desired effect. Nonetheless, the Swiss franc remains significantly overvalued.