. interest rates on the capital market have also fallen. in june, yields on 10 - year swiss confederation bonds fell to a record level. the low capital market interest rates reflect a higher demand for swiss government bonds. in addition, long - term inflation expectations continue to be firmly anchored. private companies are also benefiting from low interest rates on capital markets. credit risk premia have fallen further and rates of interest on bank loans are also at a very low level. since the last monetary policy assessment, the swiss franc has appreciated against the euro. it has simultaneously depreciated against the us dollar. as a result, the trade - weighted external value of the swiss franc has only slightly increased. the expansionary monetary policy is also reflected in the monetary aggregates. thus, the monetary base rose to a record chf 128. 6 billion in may, and growth of the monetary aggregates is continuing at a high level. for example, m2 was growing at 10. 2 % in may and m3 at 7. 1 %. credit growth also increased further. after slowing to 2. 7 % in september 2009, the rate of growth increased to 4. 1 % in april. this acceleration is attributable to loans not secured by mortgages, which have been growing since april. mortgage loans grew at a rate of over 5 % in april. there are still no signs of any credit crunch in the survey on bank lending conditions conducted regularly by the snb. the survey even provides initial indications of a possible trend reversal. during the financial crisis, a number of banks had reported a slight tightening in their loan conditions. however, in the first quarter of 2010, a few banks ( for the first time ) reported an easing. we continue to observe a considerable increase in loan volumes for residential mortgages. this increase, along with movements in real estate prices, represents a risk that demands the full attention of the snb. my colleague, thomas jordan, will discuss this topic in greater depth. development of the snb ’ s balance sheet as a consequence of monetary policy in my following remarks, let me focus on the extraordinary development of the snb ’ s balance sheet. as is the case at other central banks, the balance sheet has undergone a considerable expansion and change in its composition since the beginning of the financial crisis. by may 2010, it had nearly tripled in size to over chf 300 billion. this extraordinary development in the balance sheet is a direct consequence of monetary

pick - up. and i think this prognosis is consistent with our inflation report central projection of bis central bankers ’ speeches a gentle, albeit sustained, recovery over the next three years. that is a somewhat sobering, but not calamitous, outlook for real growth. most of the economic problems we face will be eased as growth recovers but, in my view, a return to boom conditions is unlikely in the uk anytime soon. if that is the outlook for growth, then what about inflation? that has been above target now for most of the past five years. but it would be hard for anyone to argue that inflation has been high because of excess demand growth in the uk. and because monetary policy works in large part by boosting or restraining nominal demand that would not seem to be the root cause of such high inflation either. rather we have been subject to a range of cost or supplyside shocks including high energy prices internationally, compounded by the large depreciation of sterling during the financial crisis, and tax changes and other “ administered ” or regulated price rises reflecting difficult policy choices ( such as producing cleaner energy ). as a relatively small open economy, overly dependent on financial services, the uk has been more exposed than most countries to externally - driven cost pressures. it may sound perverse, but my concern for much of the past five years has been the risk of eventual deflation : that once the temporary effects of the various price level shocks work off, weak demand growth would leave us with a japanese - style economic malaise which would have been very difficult to escape from. the asset purchase programme – or qe as it is generally called – has been crucial in avoiding that outcome. during the recession we have been trying very hard to stimulate the economy – but always with an eye on inflation returning to the 2 % target in the medium run, as we are required to do. if qe has contributed to inflation still being somewhat over - target at around 2 ½ % now, that seems to me a much better outcome than the alternative of a deeper recession and a greater risk of deflation. we have had our critics over the past few years and an open debate on monetary policy is to be welcomed. but i have not heard anyone suggest a more convincing or attractive policy stance for monetary policy than that which we have pursued. the question now is what we should do with monetary policy as these shocks work their way out of the system. it feels as if monetary policy has