debt onto a stronger footing and building up domestically financed foreign reserves. economic policy and economic incentives would then have to take into account the task of of improving the outlook for the current account balance. inflation has been below the inflation target for nine consecutive months. this is the secondlongest such period since the inflation target was adopted in march 2001, the longest being a twelve - month period from november 2002 through october 2003. but it is not inconceivable that we might break that record, as the bank ’ s forecast, published yesterday, entails that inflation will remain below target through the early months of 2015. inflation below target is not more desirable than inflation above target, though. in this context, we mustn ’ t fall into the trap of expecting monetary policy instruments to be so strong and quick - acting that inflation will always measure 2. 5 %, no matter what shocks hit the economy. the main objective is to keep average inflation close enough to the target over a long period of time that the target itself provides an anchor for inflation expectations and the many decisions that require an estimate of future inflation. but how close is close enough? in this context, our so - called tolerance limits for the inflation target – namely, 1 % and 4 % – are too wide, and it is worth noting that those limits are merely the trigger for the submittal of a report to the government explaining how inflation will be bis central bankers ’ speeches brought back to target. in short, then, the inflation target is not 1 – 4 %. in order to underline the control problem, i sometimes say that the inflation target is not 2. 5 % but 2½ %. what this means is that, if we think in whole and half percentage points, a deviation of half a percentage point or less from target would be considered within the boundaries of targetlevel inflation. by that criterion, inflation as projected in the bank ’ s forecast will be at target for the entire forecast horizon through end - 2017, apart for the last quarter of 2015 and the first quarter of 2016. according to the forecast, inflation will average 2. 6 % during the period 2014 – 17 and will therefore be at the 2½ % target. if this materialises, it is hard to call it anything other than an acceptable performance. it is naturally less of a concern if inflation deviates temporarily from target if inflation expectations do not deviate in the same direction. early this year, inflation expectations were above target even though

this volatility makes it harder to steer the libor. it should, however, be borne in mind that the snb does not use a point target but a target range, which allows a certain amount of fluctuation in the libor. yet the most notable thing is that, despite these difficulties, we have succeeded in keeping the libor around the middle of the target band. this is, after all, what counts for the implementation of monetary policy. so neither the current criticisms levelled at the libor nor the actual movements in the libor are an immediate reason to dispense with this rate as the operational target of the snb. conclusion let me briefly conclude. despite clear signs of a return to calm, the money market has not yet gone back to “ business as usual ”. the libor / tois differentials continue to indicate a certain degree of tension. the various waves of turbulence also show how difficult it is to predict what will happen next. central bank actions have helped to defuse the situation. nevertheless, they can only treat the symptoms of the malaise, or fever. an effective cure and the restoration of confidence between market participants are primarily a matter for the banks themselves. the snb ’ s tools – its medicine cabinet – have so far proved their worth during the turbulence. yet the crisis provides a reason to review and where necessary adapt them. for central banks, it is important to consider, not just the immediate effect of an instrument, but also the longer - term repercussions. thanks to their monopoly in issuing currency, central banks can engage in almost unlimited short - term intervention when markets and market participants are threatened with collapse. however, such extreme measures carry high risks for the longer term. it is all too easy for market participants to assume that they will be protected from the negative effects of their own actions during a crisis. central banks need to keep a close eye on this moral hazard problem, and if necessary take steps to contain it through appropriate regulation. chart 1 : risk premia measured by the libor / tois ( or ois ) spread % chf eur usd gbp 1. 20 1. 00 0. 80 0. 60 0. 40 0. 20 0. 00 jan 07 mar 07 may 07 jul 07 sep 07 nov 07 jan 08 mar 08 may 08 chart 2 : fine - tuning operations % repo on index ( snb ) fine - tuning 2. 80 2. 60 2. 40