upswing. in the new forecast, inflation will rise more markedly at the end of the forecasting horizon due to an even more expansionary monetary policy since june. expansionary monetary policy to be continued at our last media conference, i pointed out that the national bank must be prepared to react quickly to changes in the economic situation. when the delay in economic recovery became discernible in summer, we acted immediately by again lowering interest rates. since then, nothing of basic significance has changed in our assessment of the situation. we shall adhere to our expansionary monetary policy in the foreseeable future. we will thus contribute to the economic rebound and continue to keep swiss franc investments unattractive. the low interest rate level and the relatively strong growth of monetary aggregates currently do not represent a threat to price stability. once a sustained economic recovery becomes discernible, we shall have to review our monetary policy and adjust it to the new circumstances. there is still no sign, however, that the time for this is approaching. on the contrary, the risks still point downward. should the recovery in the us and in europe be delayed or should the swiss franc appreciate markedly, the expected upswing in switzerland would be threatened. in such a case, the national bank is ready to react by appropriate means. under present conditions, however, our monetary policy is sufficiently expansionary. currently, the risk of deflation is being widely discussed. as can be seen from our forecast, this risk is likely to be negligible in switzerland in the medium term. certainly, in the short term it is always possible for special effects, e. g. a marked reduction in the oil price, to lead to negative inflation rates in individual quarters. nevertheless, we consider a continuously falling price level in conjunction with a strong decline in the demand for goods and in production improbable in the present circumstances. our expansionary monetary policy and the flexibility of the swiss economy would prevent such a development. in the present situation, however, other efforts are needed besides an expansionary monetary policy in order to maintain or to enhance the attractiveness of switzerland as an industrial and business centre. the efforts aimed at a further liberalisation of the domestic economy may not be abandoned. sectors suffering from structural problems must improve their competitiveness by means of consistent adjustments. our experience with the monetary policy concept let me briefly describe the experience gained with our monetary policy concept. we introduced this concept exactly three years ago. you are acquainted with

branch licenses and customer base. the realisation of bad assets in such cases is much better than in cases under liquidation. moreover, depositors having deposits more than the insured amount also get back a substantial part of their deposits. at the same time, payout by the dicgc is substantially reduced. moral hazard is sought to be reduced by restricting such solutions to the legacy cases and progressively bringing cooperative banks on par with commercial banks in terms of minimum prudential standards and supervisory rigour. line of credit 10. in the context of funding deposit insurance, the availability of line of credit from the central bank / government to overcome temporary liquidity problems in times of crisis is very important. in several countries deposit insurers heavily rely on such lines of credit. in india too there is a provision for such accommodation from the reserve bank of india. though this facility is limited to inr 50 million ( equivalent to a little over us dollar 1 million ), it has never been used by the corporation. a collateralised funding arrangement is something that may be explored when it is required to deal with situations where markets have become illiquid. taxation issues 11. an important issue having a bearing on funding is taxation of income or surpluses available with the deposit insurance system. taxation practice varies from country to country. in asia region such income / surplus is exempt from tax in most of the countries, but there are certain countries 2, including india, where tax is levied either on the premium income or on income from investments or the entire surplus of the deposit insurance system. in india, the entire net surplus of dicgc is subject to taxes. as a result, a major part of the funds collected by the corporation by way of premium is paid to the government as taxes. you may be surprised to learn that dicgc is among the top five taxpayers in the country. deposit insurance activity being a welfare activity to protect the interest of small depositors and help maintaining financial stability, there is a strong case for exempting deposit insurance from income tax. this will enable the deposit insurer to build up sufficient funds even to meet a situation of systemic dimensions. deposit insurance for financial stability – some current issues 12. the recent financial crisis has highlighted the importance of deposit insurance in promoting financial stability. the steps taken by governments and deposit insurance systems all around the world have helped in restoring stability in the system but have also raised the issue of moral hazard, as aptly summarised by sebastian sc