After that, I will focus on the Swiss economy and our new inflation forecast. The last part of my remarks will concentrate on the latest adjustment to the ECB’s monetary policy concept and the National Bank’s profit distribution. Financial markets After the war in Iraq the financial markets reassessed the economic situation. The risks emanating from the international political situation lost significance, and the markets returned their focus on the fundamentals. The different markets have been giving off mixed signals. On the one hand, yields on long-term bonds in the major currencies fell to their lowest level in years. This is a reflection of the fact that bond markets expect low inflation and subdued economic movement for an extended period. Equity markets, on the other hand, recovered somewhat in the second quarter. Risk premiums on corporate bonds went down as well. This is a sign that some market participants are quite confident that corporations will make a stronger showing. Exchange rates underwent a revaluation too. The marked decline of the US dollar against the euro can partly be interpreted as a normalisation after the previous exaggerations, and partly be attributed to the widening disequilibrium in the balance of payments and in the US budget. Moreover, given the extremely low US dollar interest rates, currency risks could be hedged at favourable conditions by concluding forward contracts - an attractive option in times of decreased risk capability. With the resulting forward sales the dollar came under further pressure.

The euro has depreciated substantially against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB has concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified. Interest rate lowered At the same time as discontinuing the minimum exchange rate, the SNB will be lowering the interest rate for balances held on sight deposit accounts to –0.75% from 22 January. The exemption thresholds remain unchanged. Further lowering the interest rate makes Swissfranc investments considerably less attractive and will mitigate the effects of the decision to discontinue the minimum exchange rate. The target range for the three-month Libor is being lowered by 0.5 percentage points to between –1.25% and –0.25%. Outlook for inflation and the economy The inflation outlook for Switzerland is low. In December we presented a conditional inflation forecast, which predicts inflation of –0.1% for this year. Since this forecast was published, the oil price has once again fallen significantly, which will further dampen the inflation outlook for a time. However, lower oil prices will stimulate growth globally, and this will influence economic developments in Switzerland positively. Swiss franc exchange rate movements also impact inflation and the economic situation. The SNB remains committed to its mandate of ensuring medium-term price stability while taking account of economic developments. In concluding, let me emphasise that the SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future.