with a view to limiting the exchange rate, credit and concentration risks of its foreign currency investments. the snb had already begun diversifying its investments in the late 1990s. the snb foreign currency investments are considerably more diversified than those of many other countries, with many central banks investing their foreign exchange reserves mainly in us treasuries, that is, in public debt titles and in dollars. while the snb also holds the large majority of its portfolio in the form of government securities, it also currently holds as many as 10 % of its reserves in equities and 5 % in corporate bonds. in order to limit credit risk, the large majority of our public debt holdings have the highest ( aaa ) or second - highest rating ( aa ). in effect, our current allocation corresponds to 86 % aaa - rated and 13 % aa - rated public debt holdings. the snb diversification strategy is, however, subject to limits. these spring from the stringent requirements with regard to the security and liquidity of the investments. many investment markets are too narrow, and do not meet the snb ’ s liquidity requirements. the snb ’ s investment universe – and thus its scope for diversification – is therefore limited. the bulk of the worldwide supply of highly rated public debt instruments is denominated in euros and us dollars. it is thus due to the instruments available on the market that the largest part of our foreign currency investments is in euros ( 55 % ) and in us dollars ( 25 % ). the remainder of our investments is composed of yen ( 10 % ), canadian dollars ( 4 % ), pounds sterling ( 3 % ) and other currencies ( 3 % ). finally, taking a general and somewhat longer - term view, the following point should be noted. the snb ’ s currency reserves are made up of foreign currency investments and gold. in a risk - averse environment, losses tend to occur on foreign currency investments and profits on gold, while in a risk - friendly environment the opposite is true. consequently, diversification of a portfolio to include gold and foreign currency helps to stabilise earnings over an entire risk cycle. bis central bankers ’ speeches

slightly weaker rate of 1. 6 %. due to improved economic activity abroad and the favourable exchange rate, exports exceeded their year - earlier level by 7. 4 %. equipment investment, which had expanded by as much as 7. 5 % in the final quarter of 2003, declined slightly due to special effects. the upswing has also made itself felt in certain domestic sectors. this is evident in private consumption, which increased by 2. 3 %. the uptrend, which had begun towards the end of last year, thus continued. surveys confirm that consumer sentiment has improved. construction investment also topped the year - earlier level by a hefty 2. 8 %. the expansion in mortgage loans by 5. 5 % confirms the revival in the construction and real estate sectors. the upswing is also evident from a stabilisation on the labour market. for the first time in five quarters employment slightly exceeded the corresponding year - back level. the job vacancies indices reveal that demand for labour is gradually rising again. the favourable overall picture is confirmed by the economic barometer of the institute for business cycle research at the swiss federal institute of technology. how do we assess economic development in the near future? for this year, we are forecasting economic growth of close to 2. 0 %. growth is therefore likely to be underpinned by both higher exports and stronger domestic demand and to lead to a gradual decline in unemployment as from the second half of 2004. towards the end of 2005, the economy should again be working close to capacity, and this will influence price formation. our inflation forecast of march already showed that, given an unchanged interest rate of 0. 25 %, inflation would exhibit a rising trend as from the second half of 2005. the reason was to be found in improved capacity utilisation and unemployment declining in step with the more favourable economic conditions. this assessment has not changed in any way. the new forecast, adjusted for the 25 basis points rise in the three - month libor, now suggests that, as from the second quarter of 2005, inflation will fall short of the figure predicted by the last forecast. it makes it clear that the normalisation of the monetary policy course now initiated improves inflation prospects. the monetary development our inflation forecast is much less certain over a longer horizon. for this period of time, it is particularly helpful to consider monetary factors. for the monetary analysis, i shall deal with the development of the money stock m3. when interest rates were last cut