in this sector. what is more, robust domestic demand also played a role this time round. significant increases in real salaries and the continued labour market upturn had a positive impact on private consumption, while the robust financial health of the corporate sector coupled with a rosy business outlook helped to stimulate investment. final domestic demand thus rose 2 % in 2007, compared to 1. 7 % in the prior year. thanks to burgeoning demand, employment was up sharply, with the unemployment rate edging down to 2. 6 % in seasonally adjusted terms by december. the swiss economy is thus experiencing a period of virtually full employment and has been able to benefit from the flow of workers from the european union and the flexibility this brings. the economic figures for 2007 are all the more pleasing given that prices have remained stable despite the hike in commodity prices. over the year as a whole, prices increased by 0. 7 % on average. however, by december, inflation was up 2 % – an acceleration primarily attributable to the sharp jump in the price of oil. in such a favourable climate, it was important for monetary policy not to stimulate the economy any further. by persisting with excessively low interest rates, we could have aggravated inflationary risks and thereby disturbed the macroeconomic equilibrium. the snb therefore maintained its monetary normalisation course by lifting the libor target range by 25 basis points on three occasions. the three - month libor thus rose from 2. 1 % at the beginning of the year to 2. 75 % in september. in view of the considerable financial uncertainty and the effect this was having on growth prospects for 2008, we subsequently left the target range unchanged and stabilised the libor at the 2. 75 % mark. we have since maintained this position. turmoil on the financial markets the financial storm of the last nine months has challenged our assessment criteria. such turmoil poses considerable risks for the future. before i deal with these issues, please allow me first to look at the factors which have brought us to this situation. after several years of rising home prices in the united states, there was a trend reversal to the downside which hit the high - risk sub - prime mortgage segment hard. it was when credit rating agencies began a massive downgrading of sub - prime mortgage - backed securities that the global financial markets realised the full enormity of what was happening. during the summer months of 2007, the prices and liquidity of these securities plummeted. this turn

’ s future economic prospects. change takes time, and recent economic performance suggests new zealand will probably not close the gap that has developed between our incomes and those of our fellow oecd countries in the near future. there are no guarantees, and nothing can be taken for granted, but there are a number of causes for greater optimism in the longer term. new zealanders are increasingly better educated, firms and workers are more experienced in managing the open economy, macroeconomic credibility has been established ; and over time, exposure to the competitive pressures and opportunities of an increasingly high - tech world should help transform the nature of new zealand business. monetary policy will continue to do what it can, providing a stable backdrop against which firms and households can plan for a better new zealand in the new millennium.