2010 to the first quarter of 2013 and shows the future inflation development on the assumption of the three - month libor remaining constant at 0. 25 % over the entire forecasting horizon. for purposes of comparison, the ( dash - dotted ) green curve shows the inflation outlook published in march, which was also based on the assumption of a three - month libor of 0. 25 %. the new forecast shows unchanged inflation prospects. however, new data have led to a slight upward revision in the inflation forecast in the short term, so that inflation arrives at nearly 1 % in the second quarter of 2010. since the oil price in the first half of 2009 was lower than in 2010, this level is due to a base effect attributable to oil prices. thereafter, inflation is projected to remain below 1 % until the second quarter of 2011. on the one hand, the base effect attributable to oil prices weakens. on the other hand, production remains below its potential. the forecast shows that – should the libor remain at the level targeted today – inflation accelerates from the third quarter of 2011 onwards. at 2. 2 %, the inflation forecast for 2012 is the same as in the march forecast. the forecast shows that the current expansionary monetary policy cannot be maintained over the entire forecast horizon without compromising medium and long - term price stability. the forecast is still associated with very considerable uncertainties.

policy. the snb had lowered interest rates sharply during the financial crisis, but by the spring of 2009, the traditional interest rate instrument was practically exhausted. consequently – with an incipient threat of deflation – the snb adopted unconventional measures to loosen the monetary conditions further. by carrying out long - term repo transactions and foreign exchange swaps, acquiring swiss franc bonds issued by private sector borrowers and purchasing foreign currency, the banking system was supplied with large amounts of liquidity. in the past few months, foreign exchange purchases, in particular, have been an effective instrument for averting deflationary risks. while the liquidity created by purchasing foreign exchange and swiss franc bonds is of a permanent nature, liquidity resulting from repos and currency swaps is temporary. it flows back automatically when transactions are not renewed. this has occurred to a large extent in the meantime. the considerable expansion in the snb ’ s balance sheet is therefore primarily attributable to the increase in foreign exchange reserves. these have more than quadrupled to just over chf 230 billion as a result of the interventions since the beginning of the financial crisis. from today, the snb will also be publishing information on current foreign exchange reserves on its website ( www. snb. ch ) at the beginning of each month. the high level of foreign exchange reserves will inevitably increase currency risk and mean that debtors are concentrated in a few major countries. these risks ultimately represent the burden the snb has assumed in order to protect the swiss economy from the threat of deflation, in line with its mandate. balance sheet risks have risen overall. the snb is now reaping the benefits of having continuously increased its allocation to provisions in previous years. this gave it the room for manoeuvre it needed for measures in times of crisis. the higher allocation to provisions decided on recently has further strengthened the snb ’ s capital base. the snb has sufficient equity capital to withstand even large losses. in the long term, a large part of the liquidity that has been created is excess liquidity. as my colleague, jean - pierre danthine, will explain, the snb has the necessary instruments at its disposal to withdraw this liquidity. inflation forecast chart i would now like to comment on the new, conditional inflation forecast in more detail. the ( dashed ) red curve on the chart represents the new, conditional inflation forecast. it covers the period from the second quarter of