the new european currency would destabilize the swiss franc. in the past, the swiss franc, along with the german mark, played the role of a safe haven currency whenever monetary crises occurred. with the disappearance of the german currency, the swiss franc would find itself first in line of fire in case of a dollar crisis, for example, or even worse, in case of doubts about the stability of the european currency. b ) second, we risked seeing the euro being increasingly used as a means of payment in switzerland. as the common currency was about to become the main unit of account for our exports, we feared that domestic firms might adopt the euro as well, so as to minimize exchange rate risks. some were even considering wages being paid in euro. if use of the franc were to be crowded out by the euro, the swiss national bank would have had little leverage left to influence monetary conditions in switzerland. it would become a sort of paper tiger! c ) third, even short of a full “ euro - ization ” of the swiss economy, we feared the loss of our monetary policy autonomy. given the importance of the common currency for the swiss economy, what else could the swiss national bank do other than follow the european central bank ’ s policy and de facto integrate the franc into the euro zone? a gradually shrinking interest - rate differential between euro and swiss franc investments as well as a loss in monetary autonomy would have resulted. how does our recent experience relate to these concerns? 3. our experience as an independent monetary entity a ) the euro / swiss franc relationship our fears of a euro destabilizing the swiss franc did not materialize. relative to the euro, and since its introduction, the franc has been fluctuating in a relatively narrow band of plus or minus 5 percent, about four times less than against the dollar during the same period. the swiss franc appears now to be less affected by exchange rate shocks and more shielded from speculative movements. in the past, the franc was overreacting to the dollar ’ s fluctuations, so that the pain of an appreciation of our currency relative to the greenback was exacerbated by a simultaneous appreciation of the swiss franc relative to the german mark. this double whammy effect, attributed to the narrowness of the swiss franc market, was highly penalizing for our export sector. since the introduction of the euro however, this pattern is no longer observed.

spillovers that affect consumer prices primarily by lowering import price inflation. 3 chart 8 shows that most of the downward pressure on swiss inflation is attributable to these international spillovers. however, as can be seen in the chart, domestic price components have shifted down as well. this harks back to the flexibility of swiss companies, which i referred to earlier. in particular, those swiss companies that compete in markets for imported goods have lowered their prices in order to maintain competitiveness in the wake of the exchange rate appreciation. such price cuts play an important role in restoring the swiss economy ’ s price competitiveness over the medium term. they are thus part of the adjustment process in response to the sudden exchange rate appreciation. that such a process can be painful for some of the companies directly involved goes without saying. for this year, we expect consumer price inflation to average about – 1. 2 %. we think that the inflation rate will reach its trough this quarter. for 2016, we expect average inflation of −0. 5 %. as you can see from the chart, inflation will move back into positive territory in early 2017. these forecasts assume that the three - month libor remains at – 0. 75 % over the entire forecast horizon, that the brent crude oil price remains at usd 50 per barrel and that the swiss franc weakens. again, our forecasts show that the current period of negative inflation is temporary. nevertheless, even temporarily negative inflation rates are undesirable. yet they cannot always be avoided – especially during phases of strong exchange rate appreciation. what matters is that inflation expectations remain firmly anchored and that monetary policy is able to ensure medium - term price stability. medium and long - term inflation expectations are still positive. this can be seen in various surveys of inflation expectations, and is confirmed by discussions between the snb ’ s delegates for regional economic relations and company representatives from different sectors of the economy. thus, we do not expect sustained negative inflation, let alone a deflationary spiral. concluding remarks this brings me to the end of my speech. earlier this year, the snb took some far - reaching decisions : it discontinued the minimum exchange rate against the euro, and lowered the negative interest rate on sight deposits significantly into negative territory. these measures were necessary to promote adequate monetary conditions for the swiss economy, and to ensure the snb ’ s ability to provide medium - term price stability in the future. since mid - january this year, the snb ’