a brief recap of the three elements of our strategy and explain the impact this adjustment will have. the first element is our definition of price stability. the snb equates price stability with a rise in the swiss consumer price index of less than 2 % per annum. price stability is to be ensured over the medium term. this primary goal of our monetary policy remains unchanged. the second element is our conditional inflation forecast. this is drawn up quarterly, with each forecast having a horizon of three years. the inflation forecast gives us an indication as to whether our current monetary policy stance is appropriate for keeping future inflation within the range consistent with price stability. it is our compass, so to speak, showing us whether we are heading in the right direction. it plays another important role in that it gives the public an indication with regard to the need for monetary policy adjustments going forward. the inflation forecast is based on the assumption that a given interest rate remains unchanged over the entire forecast horizon. to date this has been the three - month libor, and from now on it will be the snb policy rate. this brings me to the third element of our monetary policy strategy. this determines how we communicate the level of money market rates we seek to maintain. to date, we have used the target range for the three - month libor for this purpose. we will now do so by setting the snb policy rate. in implementing our monetary policy, we will ensure that the secured short - term money market rates are close to the snb policy rate. in this regard, we are focusing on saron, the most representative of the short - term swiss franc rates. saron is an overnight rate. given that we are now focusing on an overnight rate rather than a three - month rate, there is no further need for a target range. this was previously necessary because expectations regarding future monetary policy could strongly influence the three - month rate. the snb policy rate also sets the terms for monetary policy - related transactions with the snb. the conditions on the money market are currently determined by the interest rate banks pay on their sight deposits at the snb. we have decided that the interest on these deposits will at present correspond to the snb policy rate, and will thus remain at −0. 75 %. i will now summarise the importance of the snb policy rate. from this point onwards, we will use the snb policy rate in taking and communicating our interest rate decisions.

offer an attractive way to counterbalance the risks born by large holdings of key currencies. our currency is thus less demanded as reserve currency and less involved in speculative capital movements. this is basically good news for the swiss economy. 3.... and what about the future? what conclusions can be drawn from the past? will the swiss franc remain stable vis - a - vis the euro, or will we see a more independent development of our currency? again, the answer to this question will depend crucially on economic fundamentals in switzerland and in the euro - zone. in both areas, the economy is now recovering from the recession, following a steady upward path. the expected growth rates for this year amount to 2. 2 % for switzerland and 2. 9 % for the euro - zone. the central question for the exchange market is to what extent the economic upturn could endanger price stability, and what kind of central bank ’ s reaction can be expected. 3. 1 uncertainty about lasting convergence in european and swiss fundamentals while europe is now growing faster, it still suffers from an unemployment rate of roughly 10 %. at first sight, one might think that this big labor reservoir would allow the economy to grow without tensions on the labor market and without large wage adjustments. inflation would remain subdued, and there would be no need for an all too restrictive monetary policy. this, however, is only the “ first sight ” scenario. european unemployment is largely structural, meaning that although there is a demand for labor on the part of the firms, this demand is not necessarily matched by the supply on the labor market. under these circumstances, the labor market could constitute a bottleneck for growth and lead to inflationary pressure. to prevent inflation from rising, the european central bank would have to further increase interest rates. clearly, structural adjustments are of the essence in europe. in the absence of flexibility, the unemployment rate cannot be lowered significantly and doubts exist about the actual room of maneuver of the monetary authorities. expected growth for switzerland, on the other hand, looks quite moderate by international standards. thus, one might think that there is little danger of inflation and that the swiss national bank should further support the seemingly fragile economic upturn. a look at the labor market, however, shows another picture. unemployment has fallen steadily since the summer of 1997 to a low rate of 2. 3 % only. its recent increase to 2. 6 % is due to seasonal factors. moreover, there are already