in this period for one reason and one reason only : the zero interest rate lower bound had been reached and the economic situation unequivocally called for looser, not tighter, monetary conditions. the goal was to maintain price stability, which meant, in these circumstances, avoiding deflation. one should always have in mind that there are no clear recipes for avoiding a deflationary trend in such a situation. the most famous illustration of this statement is the us experience in the late 1920s and early 1930s. at the time the us policymakers underestimated the consequences of a bout of deflation and failed to take aggressive action. the consumer price index ( and the gdp deflator ) declined by 24 % from august 1929 to march 1933, after having been virtually flat from 1921 to 1929. this decline was accompanied by a fall in real gdp of almost 30 percent. 9 a more recent example is japan ’ s “ lost decade ”. there the situation was not underestimated to the same degree. however, public actions culminating in a doubling of japanese public debt proved to be insufficient to avoid a protracted deflationary episode. let me review the history of our interventions in more detail. at the beginning of 2009, the severe downturn in the global economy had translated into a very serious threat of deflation in switzerland. for example, the inflation forecasts produced by the imf showed inflation in switzerland to be in negative territory for two years in a row. price stability was evidently not assured. the substantial increase in the value of the swiss franc since the beginning of financial crisis represented an inappropriate tightening of monetary conditions. yet, it was imperative that monetary conditions be kept as loose as possible, a fortiori to avoid a further monetary tightening. given that the interest rate was effectively at a zero level, the snb decided to prevent any appreciation in the swiss franc with respect to the euro from march 2009 on. the snb achieved this goal by repeatedly intervening in the foreign exchange market during the course of 2009. this policy was maintained until the monetary policy assessment ( mpa ) of december 2009. by the end of 2009, the economic situation was showing some signs of improvement and the threat of deflation was estimated to have diminished. as a consequence, the snb decided that a certain appreciation in the swiss franc could be allowed without price stability being compromised. at the december mpa, the snb therefore announced that it would act there are, however, twice daily

niklaus blattner : current economic situation and monetary policy summary of a speech by mr niklaus blattner, vice - chairman of the governing board of the swiss national bank, at the 1st basel economic talks of the national bank, basel, 5 may 2006. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * switzerland ’ s economy clearly picked up pace last year. exports were the main engine for growth, while construction and consumer expenditure also buoyed up economic activity. companies were nevertheless reluctant to invest or hire new staff. the recovery was thus still patchy, and inflation risks were accordingly low. since the beginning of the year, there has been a stream of positive news from switzerland and abroad. the us and asia are still enjoying a high level of economic momentum, and in europe, too, the recovery is becoming more firmly entrenched. benefiting from the favourable international environment, the upswing in switzerland has gained a broader footing. the investment environment in particular seems much more attractive now than last year. this applies especially to northwestern switzerland. many companies in this region have stated that they now want to implement investment plans that have been put on hold for a long time. the swiss national bank expects switzerland ’ s gdp to expand by just over 2 % this year. the economic upturn does not jeopardise price stability, at least not in the short term. in the long term, however, the current low level of interest rates is not compatible with price stability. if the economy performs as expected, the national bank will further pursue the gradual adjustment of its monetary policy that has already been initiated.