The rotation from net asset purchases towards our conventional monetary policy instruments, together with our stock of assets and the related reinvestment policy, ensure an ample degree of monetary policy accommodation. In particular, our enhanced rate forward guidance provides a strong anchor for policy rate expectations. And the reinvestment policy will ensure that the favourable liquidity conditions and duration extraction associated with the large stock of assets on our balance sheet remain in place for a long period and thereby exert downward pressures on term premia. The mechanisms underlying the combination of instruments are duration extraction, liquidity creation and expectation management. Starting with duration extraction, our reinvestment policy implies that the bonds we have purchased will remain on our balance sheet for an extended period of time after the end of net purchases. Asset purchases affect interest rates mainly through the market price of duration risk, which is the interest rate risk borne by price-sensitive investors holding long-term bonds. If the central bank wants to exert downward pressures on long-term interest rates, then it can absorb duration risk from the market by purchasing securities with a relatively longer maturity. This frees up more risk-bearing capacity for investors, which they can re-allocate towards other types of risk, including investment in productive capacity. For a central bank to set this mechanism in motion, it needs to hold a large portfolio of long-dated securities embodying duration risk. Chart 5 shows that we have built a sizeable portfolio estimated at around 20% of the duration-equivalent stock of public debt.

Although this announcement substantially reduced the probability of extreme events and led to an easing in the financial and credit markets, the economic situation in the monetary union remains vulnerable and the level of uncertainty is still considerable. A further source of uncertainty are the upcoming fiscal decisions in the US. Swiss economic outlook In Switzerland, real GDP in the third quarter increased again following a downturn, due to a temporary recovery in exports. For the fourth quarter, however, we again expect significant weakening in growth. Consequently, economic growth for this year is likely to come to around 1.0%, as forecast to date. For 2013, we expect growth of 1.0–1.5%. While the gradual revival in the global economy is having a supportive effect, the strength of the Swiss franc will hold back export momentum and corporate investment expenditure. Domestic demand is also likely to be restrained over the next few quarters. In view of the modest pace of growth, production capacity in Switzerland will probably remain underutilised in 2013. The rate of unemployment is likely to rise further. Given the fragility of global conditions, the downside risks also remain high for Switzerland. Monetary and financial conditions I will now turn to monetary and financial conditions, which are almost unchanged as compared to the situation in summer 2012. Interest rates in the Swiss franc money market continue to fluctuate around zero. Since mid-June, the three-month Libor has fallen from some 9 basis points to only 1 basis point. Interest rates in the repo market are predominantly negative.