this was supported by the credible policies pursued by central banks, which increasingly prioritised the goal of price stability, thus contributing to a global reduction in the level and volatility of inflation. the battle against high inflation appeared to have been won. overall, this led to firm expectations of low inflation and a dramatic drop in risk premia in virtually all areas of the financial markets. however, the successful battle against inflation and the related reduction in macroeconomic volatility – also known as the “ great moderation ” – were not able to prevent serious instabilities within the globalised financial system. alongside its evident benefits, the “ great moderation ” thus seems to have produced a number of damaging by - products. in combination with low real interest rates, financial innovations and liberalised capital markets provided enormous credit - creation potential. together with a reduced perception of risk, this fostered a rapid rise in asset prices which ultimately led to excesses and imbalances in some markets. through contagion effects, the bursting of a credit and asset price bubble can bring the entire global financial system to the brink of collapse within a very short period of time. in view of the interaction with the real economy, this also has serious implications for the world economy and global growth. this raises a number of questions about the future role of central banks. can and should monetary policy be used to actively counter the development of imbalances or financial bubbles? does it make sense to use monetary policy instruments for this? will the new instruments used during the crisis also play a more important role in monetary policy in the future? to answer these questions, i would like to look specifically at two aspects. first, i will examine the measures used by central banks during the crisis and briefly outline the possibilities and limitations on their future use in monetary policy. then i will consider whether monetary policy should step up its focus on the goal of financial stability. with regard to measures taken during the crisis, i can say straight away that the effectiveness of monetary policy instruments was clearly demonstrated. we were able to safeguard price stability and cushion the negative impact on the real economy. however, vigorous interest rate cuts were not sufficient on their own – neither in switzerland nor in other countries. the liquidity situation on the money markets initially remained extremely tense. in many cases, interest rates rapidly dropped to zero. the chief monetary policy instrument could thus no longer be used. central banks around the world therefore adopted so - called unconventional measures. these included

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