to a policy involving some other form of explicit exchange rate linkage ( e. g. pegging the swiss franc to a basket of currencies ) was impractical. such a policy would likewise have opened the floodgates to speculators. there was thus no reasonable alternative to exiting the minimum exchange rate suddenly and completely. we discussed when would be the best time to communicate the decision. our choice of the morning of 15 january was designed to allow market participants to start from a level playing field when adapting to this undoubtedly challenging new situation. by discontinuing the minimum exchange rate on a weekday when market participation was high, we minimised the risk of some banks and their customers being put at a disadvantage, or of individual participants gaining an advantage. at such a time, it would be possible for established market access channels, via electronic trading platforms or phone links to the trading desks of the main currency trading firms, to be widely used – although there were some bottlenecks immediately after the announcement. by contrast, if we had announced the move at the weekend, for instance, this would have caused uncertainty about the trading conditions when the foreign exchange market opened on sunday evening ( swiss time ). australia, which normally accounts for only around 1 % of daily turnover in swiss franc forex operations, would have been overwhelmed by the volume of trades during its business hours. you can easily imagine that the turbulence on the australian market would have been far greater than that observed on the morning of 15 january, with contagion potentially spreading to the entire financial market. we wanted to avoid this. monetary policy after the minimum exchange rate so what will the minimum exchange rate discontinuation mean for monetary policy in switzerland? first, let me emphasise that the exit from the minimum exchange rate does not mean that we will simply be a passive observer of the foreign exchange market in future. the snb will continue to take account of the exchange rate situation in formulating its monetary policy and will intervene in the foreign exchange market as necessary in order to influence monetary conditions. nonetheless, the end of the minimum exchange rate does mean that interest rate steering will once again take on a more prominent role. in december last year, the snb decided for the first time to charge negative interest ( – 0. 25 % ) on banks ’ and other financial market participants ’ sight deposits at the snb. on 15 january – concurrently with the discontinuation of the minimum exchange rate

minimum exchange rate has led to a deterioration of economic conditions. we thus expect a much more modest expansion of real economic output this year of just under 1 %. a noticeable weakening in the economy may be expected, particularly in the first half of the year. in the short term, significant underutilisation of production capacity may be expected and unemployment is likely to increase moderately. there is of course a particularly high degree of uncertainty attached to such forecasts. for one thing, they will depend on how the swiss franc exchange rate evolves in the coming months. for another, it is not certain how international conditions will develop. the us economy is more robust today than it was in 2011. the latest gdp figures for the euro area are once again more reassuring, although the situation remains difficult. in addition, the substantial fall in oil prices has had an easing effect. despite all this, the risks – notably the debt dispute between greece and the rest of the euro area, as well as the crisis in ukraine – are not inconsiderable. in the long term, i am confident that our economy will be able to cope with swiss franc appreciation. the currency has been strong in the past, and has a tendency to appreciate. while a strong currency is an expression of a sound economy, it also presents companies with major challenges, as an appreciating franc means higher prices for foreign customers buying from swiss firms. in order to remain competitive, this disadvantage has to be continuously offset by adaptability, quality and innovation. various competitiveness and innovation indicators suggest that swiss companies have been very successful on this score in the past ; the country regularly ranks among the leaders in these categories ( cf. chart 6 ). these findings inspire optimism, however it is important to remember two things. first, we are dealing with averages here. when it comes to managing the new currency landscape, the options available to individual industries and companies will vary greatly ; and so, in turn, will the impact of swiss franc strength. 3 second, the extent of recent swiss franc appreciation presents switzerland ’ s economy with exceptional challenges which should certainly not be underestimated. but one thing is clear : entrepreneurial thinking is remains important. we have the utmost respect for this entrepreneurialism and for the employees who are being called upon to support these adjustments. inflation outlook let me now turn to the inflation outlook. the snb ’ s mandate is to ensure price stability in the medium term, while taking