quality and stability of the basic conditions. depending on the development of the political situation, the global economy may thus recover at a faster or slower pace than we anticipated, and the exchange rates might be subject to major fluctuations. in this case, the national bank would have to review its monetary policy. in the short run, the price of oil will also have a considerable influence on inflation. if it continues to erode, measured inflation might fall below zero for a few months. should this situation arise, it is important to bear in mind that it cannot be equated with sustained - and thus economically dangerous - deflation. on the contrary, a low oil price level would create a positive supply shock and, under the current circumstances, would impact favourably on production. inflation would be dampened temporarily. we also keep a close watch on the development of the money supply m3 in order to assess the medium - term inflationary risks. following a phase of low, or even negative, growth rates, m3 is now expanding at a somewhat faster pace. so far, however, there has been no excess supply of liquidity in the economy, and the money stock m3, therefore, does not point towards inflationary risks at present. finally, i would like to make some closing remarks about the imminent introduction of euro notes and coins. for about three years now, the euro has existed as deposit money. it has led to fixed exchange rates and a uniform interest rate level in the euro area countries. the introduction of euro notes and coins will have additional positive effects on the economic development in europe, as it will be easier to compare prices and confidence in the new currency will be strengthened. moreover, the euro is to be regarded positively not only with regard to the swiss economy but also swiss monetary policy. the swiss export sector will profit from lower transaction costs, and currency devaluations - as previously implemented by some european countries in order to improve their competitiveness - will be a thing of the past. swiss monetary policy will benefit from the fact that a large economic bloc now exists in europe which pursues similar goals in terms of monetary policy. all in all, exchange rate fluctuations between switzerland and the emu countries should thus remain below the levels seen before the launch of the euro. furthermore, the markets will realise in due course that there is no reason why the swiss franc, with regard to the role as a safe haven currency, should be assessed differently than the euro. this realisation should reduce

jean - pierre roth : review of the swiss economy : end - of - year media news conference introductory remarks by dr jean - pierre roth, vice - president of the swiss national bank, at the end - of - year media news conference, zurich, 7 december 2001 * * * the swiss national bank has decided to lower the target range for the three - month libor rate by 0. 5 percentage points to 1. 25 % - 2. 25 %. for the time being, the three - month libor is to be kept in the middle of the target range. recently, the national bank has adjusted its monetary policy twice already. on 17 and 24 september 2001, we lowered the target range for the three - month libor rate by 0. 5 percentage points each. at the time, we acted in response to the decrease in inflationary pressures and the undesirable development of the swiss franc exchange rate. the economic outlook has since continued to deteriorate around the globe. in switzerland, there are no signs that price stability might be jeopardised in the medium term. due to this development, we are now in a position to reduce rates again. accordingly, since the beginning of 2001, we have lowered the target band for the three - month libor by a total of 1. 75 percentage points, thus easing monetary policy considerably. assuming that the three - month libor rate will remain stable at 1. 75 %, inflation is expected to hover between 0. 9 % and 1. 5 % in the next three years. the national bank projects real gross domestic product to increase by 1. 5 % in 2001. for 2002 we anticipate a growth rate of around 1 %. in the following, i would like to describe the development of inflation over the past few months and explain our latest inflation forecast in more detail. the dotted curve in the graph shows our inflation forecast of june 2001. at the time, we expected inflation to climb slightly to 1. 6 % by mid - 2002 and, subsequently, to recede gradually towards 1. 2 % by the beginning of 2004. this forecast was based on the assumption of a robust development of the world economy and a stable three - month libor rate of 3. 25 %. we assumed at the time that the economic slowdown experienced in the united states and europe would be overcome as early as in the second half of 2001 and that the swiss economy would be able to perform according to its potential.