While in the US expectations of an interest rate rise were mounting, there were signs of further monetary policy easing in the euro area from mid-year onwards. The euro subsequently weakened significantly against the US dollar. This in turn affected the EUR/CHF rate, which had already been close to the minimum exchange rate for some time. As a result, the Swiss franc largely followed the euro downwards. Nevertheless, at the mid-December monetary policy assessment, we were still convinced that the minimum exchange rate was the right instrument for ensuring appropriate monetary conditions. Shortly thereafter, however, the euro depreciation gathered pace sharply, and pressure on the franc increased dramatically. It became clear that a minimum exchange rate of CHF 1.20 per euro was no longer tenable. Only sustained currency market interventions of rapidly increasing magnitude would have allowed the SNB to uphold the policy. Faced with these fundamental changes in international conditions, we came to the conclusion that the minimum exchange rate could only have been maintained through an uncontrollable expansion of the balance sheet, potentially even to a level several times higher than Swiss GDP. The risks associated with such a balance sheet expansion would have been out of all proportion to the benefits for the economy. An uncontrollable expansion of the balance sheet would have severely impaired the SNB’s ability to conduct monetary policy in the future and jeopardised the fulfilment of its mandate in the long term. On the one hand, the future use of currency interventions would have been severely constrained.

I strongly recommend that you read these boxes, which will soon be published on our website. Distinguished Guests, I would like to commence my speech by reviewing the global economic outlook given its undeniable influence on our policies. In the third quarter of the year, the uncertainty over advanced country monetary policies led to a partial volatility increase in global financial markets. While the US Federal Reserve (Fed) ended its quantitative easing program, uncertainties regarding the timing and size of a policy rate hike continued. In this period, the European Central Bank (ECB) cut its policy rates against the risks of economic slowdown and deflation and announced a kind of quantitative easing program of buying covered bonds and asset-backed securities. In the second and third quarters of 2014, indicators for global economic activity performed lower than expected, causing growth forecasts for this year to be revised down. Financial market volatility and falling global growth rates led to some fluctuation in capital flows to emerging economies (Chart 1). Following the weakening global growth outlook, commodity prices dropped markedly as well. BIS central bankers’ speeches  1  Regarding the developments in the Turkish economy, the recent global financial volatility appears to have affected Turkey in a way similar to other emerging economies. In the third quarter, Turkey’s risk premium indicators fluctuated on par with those of other emerging economies (Chart 2). Economic activity lost some momentum after the first quarter. The slowing EU growth and geopolitical tensions have restrained external demand.