in the quarters to come. although some recently released indicators point to a slight stabilization, we project the swiss economy to grow only weakly over the next few quarters. moreover, as mentioned before, there is a very high degree of uncertainty regarding the global outlook. this is also true for the swiss economy, which depends particularly on economic conditions in the euro area. if the risk scenario of a further escalation of the debt crisis were to materialize, economic activity in switzerland would suffer a much more pronounced slowdown than just described. such a development would lead to a severe risk of deflation. current swiss monetary policy given this highly uncertain outlook, the snb is – more than ever – committed to enforcing the minimum exchange rate with the utmost determination at any time. we cannot allow the swiss franc to appreciate further. hence, we must continue with our current policy, in particular as interest rates are already around zero. to enforce this policy, we are prepared to buy foreign currency in unlimited quantities, if necessary. moreover, we stand ready to take further measures if the economic outlook and the risk of deflation so require. by setting a minimum exchange rate, we have opted for a simple and clear policy, to which we are fully committed. for precisely these reasons, this policy has been absolutely credible to the markets. before concluding, let me elaborate on two potential side effects which are often discussed in the context of our current monetary policy. on the one hand, it is argued that the significant increase in liquidity since august 2011 may trigger inflation risks in the longer term. given the current economic situation, however, expanding the supply of liquidity was a necessary monetary policy response. there is currently absolutely no risk of inflation in switzerland. first, headline inflation turned negative in october 2011 and continued to decline through the end of the year. it is assumed to fall even further in early 2012. second, neither our inflation forecasts nor the medium - term inflation expectations from our surveys of households and companies show any signs of bis central bankers ’ speeches inflation risks. consequently, there is no necessity whatsoever for the snb to reduce the level of liquidity for the time being. on the other hand, a long period of very low interest rates may lead to imbalances in the domestic credit and real estate markets, which may pose serious risks for financial stability. we are well aware of these risks and are analyzing them very carefully. however, due to the exceptional monetary policy situation, interest rates cannot readily be

increased to address such threats. in other words, at the current juncture, monetary policy cannot react to these imbalances with conventional monetary policy instruments. therefore, the swiss government is due to decide soon upon the introduction of so - called macroprudential instruments that can be used – if necessary – to mitigate potential credit and housing market distortions. conclusion the outlook for the global economy remains subdued. this, together with the persistently strong swiss franc, is weighing on economic activity in switzerland. although some indicators have pointed to a slight stabilization recently, we project that the swiss economy will grow only weakly over the next few quarters. the degree of uncertainty regarding the growth outlook remains unusually high, also by historical standards. downside risks – in particular stemming from a further escalation of the european debt crisis – are substantial. if these were to materialize, economic activity in switzerland would suffer a much more pronounced slowdown than just described. despite this rather gloomy overall picture, we should not overlook the potential for a more optimistic development. for instance, if the european authorities were to credibly commit to a sustainable solution soon, existing uncertainties would be reduced substantially. in such a scenario, demand for perceived safe financial assets would fall in general, and for the swiss franc in particular. however, as downside risks are currently far more likely to materialize, the snb will enforce the minimum exchange rate with the utmost determination. under these exceptional circumstances, it is a necessary measure to fulfill our mandate. bis central bankers ’ speeches