represent a considerable risk in this regard. over the past few years, switzerland has benefited from the advent of the euro and the associated increase in european currency stability. any threat to this currency stability would, by definition, have a negative impact on switzerland, above all if the swiss franc were to appreciate sharply due to its role as a safe haven currency. the snb will not, however, allow such a development to turn into a new deflation hazard for switzerland. for this reason, it is acting decisively to prevent an excessive appreciation of the swiss franc. as part of its measures to combat the crisis, the snb supplied large amounts of liquidity to the banks. liquidity created via repos and currency swaps is temporary : it flows back automatically when the transactions are not renewed. since the volume of these transactions has declined sharply over the past few months, the amount of liquidity resulting from repos and swaps has already decreased substantially. the liquidity that we created by purchasing foreign exchange or swiss franc bonds is, however, of a more permanent nature and must be reabsorbed in good time, to ensure price stability in the medium and long term. the snb has at its disposal the requisite instruments for rapidly absorbing large amounts of liquidity as and when necessary. foremost among these are the snb ’ s own debt certificates, snb bills. we can also use reverse repos. thus, absorbing excess liquidity is technically not a problem. the challenge lies in selecting the right moment for a normalisation of monetary policy. a major factor in this decision will be the further development of the inflation outlook. the inflation forecast is the main indicator used in monetary policy decision - making by the snb. the snb monetary policy strategy does not, however, foresee a mechanical reaction to the forecast on the part of the governing board. aspects such as uncertainty about economic development and the situation on the financial markets are also factored into the monetary policy decision. v. maintaining price stability in concluding my remarks today, i would like to reaffirm that maintaining price stability is the snb ’ s utmost priority. we equate price stability with having average annual inflation below 2 % while avoiding deflation. the reason why i am emphasising this is because the financial crisis has also sparked a debate on the appropriate level for inflation. in particular, it has been suggested that central banks should target a higher inflation level in normal times. the argument goes

financial sector regulation and oversight is, without a doubt, a tough challenge. but the snb is also faced with equally tough challenges in the area of monetary policy. iii. review of monetary policy in 2009 in 2009, the snb ’ s monetary policy activities were focused entirely on combating the financial and economic crisis and the associated deflationary trends. price stability, which is not compatible with either deflation or inflation, remained the core objective. as early as autumn 2008, the snb had adopted an expansionary monetary policy stance as a result of the increasingly unfavourable economic outlook and the prospect that inflation would be low for the foreseeable future. between october and december 2008, the snb lowered the target range for the three - month libor by a total of 225 basis points, to only 0. 0 – 1. 0 %. the snb also ensured a generous supply of liquidity to the money market. the economic situation continued to worsen into the spring of 2009. in addition, the uncertainty engendered by the financial crisis had led to a strong appreciation of the swiss franc against the euro. in view of the economic situation prevailing in switzerland at that time, there was the risk of a pronounced deflationary trend, in particular if the swiss franc were to appreciate further. this risk necessitated a further easing of our monetary policy. the substantial monetary policy easing therefore continued, with a further 25 basis point reduction in the libor target range in march 2009. this left the new range at 0. 0 – 0. 75 %, where it has since remained. the snb aims to keep the libor in the lower end of the range, i. e. at around 0. 25 % ; the one - week repo rate has been at practically zero since the end of 2008. the room for manoeuvre using the traditional interest rate instrument was thus effectively exhausted in march 2009. to relax monetary conditions further, the snb significantly increased liquidity. it did so via a number of unconventional monetary policy instruments. it concluded longer - term repos and purchased bonds issued by private sector borrowers. it also bought foreign exchange on the foreign currency market and acted to prevent the swiss franc from appreciating further against the euro up to the end of the year. against the background of the economic recovery, following its monetary policy assessment in december the snb is acting only to decisively counter an excessive appreciation of the swiss fran