In fact, if the ECB decides to the change its key policy rates, or even hints at it, the indexation of the interest rate charged on our refinancing operations will immediately affect present and future funding conditions for banks, favouring inter alia the exit of some of the LTRO bidders. Furthermore, in our corridor system, the deposit rate puts an effective floor under short-term unsecured money market interest rates. Higher interest rates will reduce demand for loans, as the net present value of the project of the marginal investor becomes negative. Higher interest rates will also decrease the demand for risky assets, as the remuneration of risk-free assets increases. Eventually, for sufficiently high interest rates, inflationary pressures will subside and the system will return to equilibrium. It can still be argued that there is significant uncertainty as to how an environment of abundant excess liquidity affects the transmission mechanism of monetary policy. In particular, heterogeneity in the economic conditions of euro area countries may be magnified by the excess liquidity, which tends to flow to countries where the economic conditions are stronger. However, should this uncertainty weaken our ability to maintain price stability, the ECB has the necessary instruments to absorb the excess liquidity. In this respect, it is worth recalling that we have been sterilising the liquidity created with the government bond purchases under the Securities Markets Programme for almost two years. By auctioning weekly fixed-term deposits, the ECB has been successfully absorbing substantial amounts of liquidity.

At over 400 USD/ounce, the gold price was at a seven-year high at the beginning of December. Because of the weak dollar, the gold price increase in francs was more modest. However, its peak of approximately 17,000 CHF/kg was still the highest for several years. The main reason for this rise was persistently modest hedging activity by gold producers. 2  BIS Review 58/2003  Equity markets International equity markets exhibited a positive course overall, steadily making up lost ground after their mid-March low (see graph 3). As the equity environment began to present a perceptibly brighter picture, turnover also picked up. This, together with the more confident investor sentiment, reduced volatility. The ambitious profit expectations now reflected in share prices suggest that market players are optimistic about the economic situation and the corporate environment. To sum up, the financial markets are currently influenced by a complex interplay of factors: a globally synchronised economic recovery is taking place against a backdrop of external imbalances. An autonomous economic recovery outside of the US - underpinned, not least of all, by supply-side reforms - would help substantially to redress these imbalances. Key features of the SNB’s future investment and risk control process The SNB’s investment activity is subordinated to monetary policy and is determined by the criteria of liquidity, risk and returns. The new National Bank Law will extend the SNB’s investment opportunities. The current National Bank Law (NBL) limits eligible investments to gold and fixed-interest securities, and eligible borrowers to states, international organisations and banks.