##s in financial markets and seldom perform the shock absorption role that is central to traditional macroeconomic analysis. gabaix and maggiori ( 2015 ). “ international liquidity and exchange rate dynamics ”, quarterly journal of economics, 1369 - 140. [ 6 ] “ implications of usd dominance on capital flows and financial stability in emes ”, special feature 1, mas ’ financial stability review, dec 2020. [ 7 ] williams j, ( 2016 ), “ measuring the natural rate of interest : international trends and determinants ”, journal of international economics 108, s59 - s75 [ 8 ] finger et al ( 2019 ), “ facing the tides : managing capital flows in asia ”, imf asia and pacific department paper series no. 19 / 17. other studies find that some central banks ’ monetary policy space has been eroded by capital flows even under floating rate regimes. rey ( 2016 ), “ international channels of transmission of monetary policy and the mundellian trilemma ”, nber working paper series, working paper 21852 ; and miranda - agrippino and rey ( 2020 ), “ us monetary policy and the global financial cycle ”, review of economic studies, volume 87, issue 6, november 2020. [ 9 ] mano, r and sgherri, s ( 2020 ), “ one shock, many policy responses ”, imf working paper, wp / 20 / 10. [ 10 ] menon, r ( 2014 ), " getting in all the cracks or targeting the cracks? securing financial stability in the post - crisis era, " opening remarks at the asian monetary policy forum, 24 may. © 2021, government of singapore.

not seen for 15 years. this was a matter for concern, as there was a risk that such a level would alter households ’ inflation expectations, potentially leading to a sharp rise in nominal wages at year - end and resulting in a certain stickiness of inflation. however, these two elements behind the recent rise in inflation have since reversed. first, oil prices collapsed, falling below the usd 50 mark in mid - november after peaking at usd 145 in early july. the plummeting oil price can be explained both by a drop in global demand as a result of the economic slowdown we have just described, and by the unwinding of speculative positions. second, the swiss economy will soon be operating below potential, and we will see a renewed rise in unemployment. this situation will have a moderating effect on both price and wage - setting behaviour. thus, we are now forecasting – as the graph presentation will show in just a moment – that inflation will decline almost continuously throughout 2009. despite the interest rate cuts made since october and the cut announced today, inflation will remain low in 2010 and 2011. as of now, and for the current forecast horizon, upside and downside inflation risks have become symmetrical. monetary policy decision we have just explained the rationale behind our recent monetary policy : first, the global economic situation has worsened, which will hit the swiss economy as from this quarter, and in particular next year. by contrast, the inflation outlook has improved appreciably. this has increased the snb ’ s room for manoeuvre. finally, there is a risk that the financial crisis will cause a deterioration in financing conditions for the economy as a whole. these are the considerations that have prompted today ’ s decision to cut the three - month libor target range by another 50 basis points. given the expected deterioration in the swiss economy and the imponderables linked to the long and variable monetary policy transmission lags, a further rate cut appears appropriate. with this action we are reducing, to the extent possible, the risk of an even more pronounced economic downturn. inflation forecast chart how has our inflation forecast been revised? the dashed red curve on the chart represents the new forecast. it covers the period from the fourth quarter of 2008 to the third quarter of 2011, and maps the future development of inflation on the assumption that the three - month libor remains unchanged at 0. 5 % over the forecasting period. for purposes of comparison, the dash - dotted green curve