The debt reduction process which private households in the US are currently undergoing and the consolidation of government finances in several European countries, in particular, are dampening economic activity in the short term. Nevertheless, the recovery should gradually gain some strength. However, it is by no means certain that this moderately positive scenario for the international economy will become reality. The international environment continues to be highly uncertain. The European sovereign debt problem still presents the biggest risk. It is unclear whether the measures taken so far will really succeed in defusing the situation permanently. Consequently, the sovereign debt crisis still has the potential to seriously affect the international financial system as well as international economic development. What does this international environment mean for the Swiss economy? The year 2012 is likely to be another difficult one. At CHF 1.20 against the euro, the Swiss currency is still overvalued and presents major challenges to our economy. Many companies have been forced to reduce their prices, which has lowered their turnover in nominal terms. Companies  2  BIS central bankers’ speeches  exposed to international competition, with considerable depth of production in Switzerland, in particular, are facing pressure on their profit margins. An additional factor is the muted outlook for the international economy. Combined with the continued high level of uncertainty with respect to the European debt problem, this is likely to limit the willingness to invest in Switzerland. However, there are reasons for a certain degree of confidence as far as our economy is concerned.

For instance, the low level of interest rates is still having a stimulating effect on the economy. Domestic demand continues to be supported by high immigration. In addition, the repercussions of the high Swiss franc value are not only negative. For example, imported preliminary products for companies and consumer goods for households have become cheaper. Finally, Swiss firms and their employees have made huge efforts to deal with this difficult situation. Overall, the SNB expects moderate economic growth of close to 1% for the year 2012. This modest economic momentum is likely to be reflected in a moderate increase in unemployment over the course of the next few quarters. The expected economic activity is lower than would be the case for normal capacity utilisation. This means there will be no inflationary pressure from this source. Our conditional inflation forecast of mid-March 2012 shows that there is no risk of inflation in Switzerland in the foreseeable future. The forecast also makes it clear that the threat of a deflationary trend has been kept in check. Inflation rates are only temporarily negative. Nevertheless, the monetary policy challenges for the SNB remain very considerable. I would now like to go into a little more detail on our reflections on monetary policy, particularly with respect to the minimum exchange rate. Reflections on Swiss monetary policy After being announced on 6 September 2011, the minimum exchange rate was rapidly attained. When our press release was issued, at exactly 10 am, the euro was trading at a little over CHF 1.12.