SNB AR 2011
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2011
104th Annual Report
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Goals and responsibilities of the Swiss National Bank
Mandate
The Swiss National Bank conducts the countrys monetary policy as an
independent central bank. It is obliged by Constitution and statute to act
in accordance with the interests o the country as a whole. Its primary goal is
to ensure price stability, while taking due account o economic developments.
In so doing, it creates an appropriate environment or economic growth.
Price stability
Price stability is an important condition or growth and prosperity.Ination and deation, by contrast, impair economic activity. They complicate
decision-making by consumers and producers, lead to misallocations o
labour and capital, result in income and asset redistributions, and put the
economically weak at a disadvantage.
The SNB equates price stability with a rise in the national consumer
price index o less than 2% per annum. Deation i. e. a protracted decline in
price levels is considered to be equally detrimental to price stability. The
SNB takes its monetary policy decisions on the basis o an ination orecast.
Implementation o monetary policy
The SNB implements its monetary policy by steering liquidity on the
money market and thereby inuencing the interest rate level. The three-monthSwiss ranc Libor serves as its reerence interest rate. In addition, since
6 September 2011, a minimum exchange rate or the euro against the Swiss
ranc has also applied.
Cash supply and distribution
The SNB is entrusted with the note-issuing privilege. It supplies the
economy with banknotes that meet high standards with respect to quality
and security. It is also charged by the Swiss Conederation with the task o
coin distribution.
Cashless payment transactions
In the feld o cashless payment transactions, the SNB provides
services or payments between banks. These are settled in the interbankpayment system (SIC system) via sight deposit accounts held with the SNB.
Asset management
The SNB manages the currency reserves, the most important component
ofits assets. Currency reserves engender confdence in the Swiss ranc,
help to prevent and overcome crises, and may be utilised or interventions in
the oreign exchange market.
Financial system stability
The SNB contributes to the stability o the fnancial system. Within the
context o this task, it analyses sources o risk to the fnancial system,
oversees systemically important payment and securities settlement systems
and helps to promote an operational environment or the fnancial sector.International monetary cooperation
Together with the ederal authorities, the SNB participates in
international monetary cooperation and provides technical assistance.
Banker to the Conederation
The SNB acts as banker to the Conederation. It processes payments
on behal o the Conederation, issues money market debt register claims
and bonds, handles the saekeeping o securities and carries out money market
and oreign exchange transactions.
Statistics
The SNB compiles statistical data on banks and fnancial markets,
the balance o payments, direct investment, the international investmentposition and the Swiss fnancial accounts.
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Swiss National Bank
104th Annual Report 2011
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Preface
Ladies and Gentlemen
In accordance with art. 7 para. 2 o the National Bank Act (NBA), the
Swiss National Bank (SNB) submits an annual accountability report to the
Federal Assembly in which it outlines how it has ulflled its mandate
as defned in art. 5 NBA. Furthermore, pursuant to art. 7 para. 1 NBA, the
SNB submits its fnancial report to the Federal Council or approval, beorepresenting it, together with the Audit Boards reports, to the General Meeting
o Shareholders or approval and attention.
The frst part o the SNBs 104th Annual Reportcomprises the account-
ability report to the Federal Assembly (pp. 996). This is submitted to the
General Meeting o Shareholders or inormation purposes only, and does not
require approval. It describes the economic and monetary developments in 2011
and explains in detail how the SNB has ulflled its statutory mandate in
particular the conduct o monetary policy and the SNBs contribution to the
stability o the fnancial system. A summary o the accountability report is
provided on pp. 1013.
Like the years beore it, 2011 was shaped by the repercussions o thefnancial crisis which shook the world economy in 2008/2009. The pace o
global economic recovery slowed. In addition, the European sovereign debt
crisis and fscal problems in other advanced economies undermined confdence
on international fnancial markets. Against this backdrop, the Swiss ranc
appreciated urther in the frst hal o the year. In the second hal, the
appreciation gathered pace. This resulted in a massive overvaluation o the
Swiss ranc, posing an acute threat to the development o the real economy
in Switzerland and carrying the risk o deation.
The SNB maintained its expansionary monetary policy in 2011. In
August, it began taking measures to counter the strength o the Swiss ranc
by lowering the rate o interest between its regular quarterly monetary policyassessments and signifcantly increasing liquidity on the Swiss ranc money
market. As a result, total sight deposits at the SNB reached a historical peak,
and money market interest rates declined to around zero at times even
dipping into negative territory. Given the high degree o uncertainty on the
fnancial markets, however, the upward pressure on the Swiss ranc intensifed
once again at the beginning o September. Thus, on 6 September, the SNB set
a minimum exchange rate o CHF 1.20 per euro. It made it clear that it would
enorce this minimum rate with the utmost determination and was prepared
to purchase oreign currency in unlimited quantities or this purpose. It con-
sidered that, even at that rate, the Swiss ranc was still high, and announced
that it would take urther measures i the economic outlook and the risk odeation so required.
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Owing to the deterioration in the international economic environment
and the Swiss ranc appreciation, economic growth in Switzerland lost consid-
erable momentum over the course o 2011. In industries strongly ocused on
exports, value added decreased, and towards the end of the year, unemployment
rose again slightly or the frst time in two years. The downward pressure on
consumer prices was reected in the act that, rom October onwards, annual
ination turned slightly negative.
The second part o theAnnual Reportcomprises the fnancial report or
the attention o the Federal Council and the General Meeting o Shareholders
(pp. 99197). It includes the business report, which deals with organisationaland operational developments at the SNB as well as its fnancial results. The
fnancial report also includes the annual fnancial statements o the SNB
(parent company), containing the balance sheet, income statement and notes
(pp. 125166), fnancial inormation on the stabilisation und (pp. 167176),
and the consolidated fnancial statements (pp. 177194), as required under
Swiss law.
In 2011, the annual fnancial statements o the SNB (parent company)
closed with a proft o CHF 13.0 billion, ollowing a loss o CHF 20.8 billion in
the previous year. The positive annual result was driven mainly by valuation
gains on gold holdings and a net proft on oreign currency positions.
The distribution o proft by the SNB is contingent on the result o theparent company. With the annual result or 2010, the value o the distribution
reserve turned negative. Consequently, a review o the agreement on the distri-
bution o the SNBs proft was carr ied out by the SNB and the Federal Depart-
ment o Finance. The new agreement o 21 November 2011 covers the proft
distributions or the fnancial years 20112015. The annual distribution now
amounts to CHF 1 billion, and will be made only i the distribution reserve is
not negative.
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For 2011, ollowing the allocation to the provisions or currency re-
serves, the SNB is distributing CHF 1 billion to the Conederation and the
cantons in accordance with the agreement.
The stabilisation und shows a proft o USD 1.1 billion or the 2011
fnancial year. The loan granted by the SNB decreased rom almost CHF 12
billion to CHF 7.6 billion.
The stabilisation und contributed CHF 0.4 billion to the consolidated
result, bringing the annual consolidated proft to CHF 13.5 billion.
On 9 January 2012, Philipp M. Hildebrand resigned rom his ofce as
Chairman o the Governing Board. From that date, Thomas J. Jordan, Vice Chair-man o the Governing Board, took over as acting Chairman.
We wish to thank the bank authorities and our employees or their
hard work and valuable support over the past year, which presented excep-
tional challenges.
Berne and Zurich, 2 March 2012
Hansueli Raggenbass Thomas J. JordanPresident o the Bank Council Vice Chairman o the
Governing Board
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Contents
Preface
9 Accountability report
10 Summary 14 1 Monetary policy
42 2 Implementation o monetary policy
56 3 Ensuring the supply and distribution o cash
59 4 Facilitating and securing cashless payments
63 5 Asset management
72 6 Contribution to fnancial system stability
85 7 Involvement in international monetary cooperation
92 8 Banking services or the Conederation
93 9 Statistics
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99 Financial report100 Key fnancial fgures or the 2011 business year
103 Business report104 1 Legal ramework
105 2 Organisation and tasks
107 3 Corporate governance
112 4 Resources
115 5 Changes in bank bodies and management
117 6 Business perormance
125 Annual nancial statements of the Swiss National Bank(parent company)
126 1 Parent company balance sheet as at 31 December 2011
128 2 Parent company income statement and appropriation o proft or 2011
129 3 Changes in equity (parent company)
130 4 Notes to the annual fnancial statements o the parent company
as at 31 December 2011
165 5 Report o the Audit Board or the General Meeting o Shareholders
167 Financial information on the stabilisation fund168 1 Introduction
169 2 Stabilisation und balance sheet and income statement
171 3 Notes to the fnancial inormation on the stabilisation und
as at 31 December 2011
177 Consolidated nancial statements178 1 Consolidated balance sheet as at 31 December 2011
181 2 Consolidated income statement or 2011
182 3 Changes in equity (consolidated level)
183 4 Notes to the consolidated fnancial statements as at 31 December 2011
193 5 Report o the Audit Board or the General Meeting o Shareholders
195 Proposals of the Bank Council197 Proposals o the Bank Council to the General Meeting o Shareholders
199 Selected information200 1 Chronicle o monetary events in 2011
202 2 Bank supervisory and management bodies, Regional Economic Councils
206 3 Organisational chart
208 4 Publications211 5 Addresses
212 6 Rounding conventions and abbreviations
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8SNB
Contents
Accountabilityreport
10 Summary
14 1 Monetarypolicy
14 1.1 Mandateandmonetarypolicystrategy
17 1.2 Challengesformonetarypolicy
18 1.3 Internationaleconomicdevelopments 24 1.4 EconomicdevelopmentsinSwitzerland
34 1.5 Monetarypolicyin2011
42 2 Implementationofmonetarypolicy
42 2.1 Backgroundandoverview
43 2.2 Monetarypolicyinstruments
46 2.3 CollateraleligibleforSNBrepos
48 2.4 Liquiditymanagementandimplementationofminimumratein2011
53 2.5 Emergencyliquidityassistance
53 2.6 Minimumreserves
55 2.7 Liquidityinforeigncurrencies
56 3 Ensuringthesupplyanddistributionofcash 56 3.1 Background
56 3.2 Ofcesandagencies
57 3.3 Banknotes
58 3.4 Coins
59 4 Facilitatingandsecur ingcashlesspayment s
59 4.1 Background
60 4.2 TheSICsystemin2011
62 4.3 TARGET2-Securities
63 5 Assetmanagement
63 5.1 Background
64 5.2 Investmentandriskcontrolprocess 66 5.3 Changesinandbreakdownofassets
68 5.4 Riskprole
70 5.5 Investmentperformance
72 6 Contr ibutiontonancialsystemstability
72 6.1 Background
72 6.2 Mainactivitiesin2011
73 6.3 Monitoringthenancialsystem
75 6.4 Measurestostrengthennancialstability
77 6.5 Oversightofpaymentandsecuritiessettlementsystems
79 6.6 Internationalcooperationonnancialmarketregulation
81 6.7 Stabilisationfund 85 7 Involvementininternationalmonetarycooperation
85 7.1 Background
85 7.2 InternationalMonetaryFund
89 7.3 BankforInternationalSettlements
90 7.4 OECD
91 7.5 Technicalassistance
92 8 Bankingser vicesfortheConfederation
93 9 Statistics
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Accountabilityreport
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SNB 10 Accountabilityreport
On8March2012, the Governing Board of the Swiss National Bank
(SNB)submitteditsaccountabilityreportfor2011totheFederalAssemblyin
accordancewithart.7para.2oftheNationalBankAct(NBA).Thereport,
whichisreproducedbelow,issubmittedtotheFederalCouncilandtheGeneral
MeetingofShareholdersforinformationpurposesonlyanddoesnotrequire
theirapproval.
Summary
(1)TheNationalBankpursuesamonetarypolicyservingtheinterestsof
thecountryasawhole.Itmustensurepricestability,whiletakingdueaccount
ofeconomicdevelopments.TheSNBsmonetarypolicystrategyconsistsofthree
elements:adenitionofpricestability,amedium-termconditionalination
forecast,and,atoperationallevel,atargetrangeforareferenceinterestrate,
whichistheLibor(LondonInterbankOfferedRate)forthree-monthinvestments
inSwissfrancs.On6September2011,theSNBalsosetaminimumexchange
ratefortheeuroagainsttheSwissfranc.
Liketheyearsbeforeit,2011wasshapedbytherepercussionsofthenancialcrisiswhichshooktheworldeconomyin2008/2009.Thepaceofglobal
economicrecoveryslowed.Inaddition,theEuropeansovereigndebtcrisis
andscalproblemsinotheradvancedeconomiesunderminedcondenceon
nancialmarkets.Giventhissituation,theSwissfranccontinuedtoappreciate
inthersthalfoftheyear.InJulythisappreciationacceleratedfurther,to
theextentthatthesubstantialovervaluationbecameanacutethreattoprice
stabilityandrealeconomicdevelopmentinSwitzerland.
Theincreasingdeteriorationintheinternationalenvironmentweighed
heavilyontheSwisseconomy.AverageannualGDPincreasedby1.9%,after
ariseof2.7%inthepreviousyear.Whiletherstsixmonthsof2011saw
dynamiceconomicdevelopment,growthslackenedinthesecondhalfoftheyear.Aconsequenceofthiswasaslightriseintherateofunemploymentin
thelastfewmonthsoftheyear.
TheSwissfrancappreciationandtheslowingoftherealeconomyled
todecliningpricesinthesecondhalfoftheyear.In2011,theconsumerprice
indexroseby0.2%onaverage,asagainst0.7%theyearbefore.Thedownward
pressureonconsumerpriceswas reected inthefact that, from October
onwards,annualinationdippedintonegativeterritory.
Monetarypolicy
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SNB 11 Accountabilityreport
The SNB pursuedan expansionary monetary policy over the entire
courseof2011.Inthersthalfoftheyear,itkeptthetargetrangeforthe
three-monthLiborat0.00.75%,andaimedforaLiborinthelowerpartofthe
range.AspartofmeasurestakenagainstthestrengthoftheSwissfrancin
August,theSNBnarrowedthetargetrangeto0.00.25%,andaimedtokeep
the three-monthLibor ascloseto zeroaspossible. At the sametime,the
National Bank signicantly increased the supply of liquidity to themoney
market.Since,however,theSwissfranccontinuedtoappreciate,on6September
theSNBsetaminimumexchangerateatCHF1.20pereuro.ThesemeasuresweretakeninresponsetotheacutethreattotheSwisseconomyandtherisk
ofdeationarydevelopmentsoriginatingfromthemassiveovervaluationof
theSwissfranc.TheSNBemphasisedthatitwouldenforcethisminimum
ratewiththeutmostdeterminationandwaspreparedtobuyforeigncurrency
inunlimitedquantities.Atitsmonetarypolicyassessmentsof15September
and15December,theSNBreafrmeditscommitmenttotheminimumex-
changerate.
(2)TheSNBimplementsitsmonetarypolicybymanagingliquidityon
themoneymarketandtherebyinuencingtheinterestratelevel.Itsreference
interestrate isthethree-monthSwissfrancLibor.Since6September2011,
theSNBhasbeenpreparedtobuyforeigncurrencyinunlimitedquantities,ifnecessary,toenforcetheminimumexchangerate.Inthersthalfoftheyear,
excessliquiditywasslightlyreducedbymeansofliquidity-absorbingrepo
transactionsandtheissuanceofSNBBills.InAugust,thebankssightdeposits
attheSNBweresignicantlyexpandedinthreesteps,aspartofthemeasures
aimedatcounteringthestrongSwissfranc.Tothisend,withimmediateeffect
repotransactionswhichfellduewerenolongerrenewed,theissuanceofSNB
Billswassuspended,andoutstandingSNBBillswererepurchased.Inaddition,
foreignexchangeswapsandliquidity-providingrepotransactionswerealso
carriedout.Consequently,thelevelofthesightdepositsreachedahistorical
high.Theverysignicantincreaseinthesupplyofliquiditypushedinterest
ratesonthemoneymarketclosetozero.Attimes,ratesevendippedintonegativeterritory.
(3)ThroughthebanksandSwissPost,theSNBsuppliestheeconomy
withbanknotesandcoins,thelatteronbehalfoftheSwissConfederation.
Some local cash redistribution is carried out through the cantonal banks,
actingasagenciesonbehalfoftheSNB.AttheendofJanuary2011,theBasel
agencywasclosed.InFebruary,theSNBalsodecided toclose the Geneva
branchofcethelastoftheeightoriginalregionalbrancheseffectivefrom
theendofJanuary2012.Thesemeasureswereinresponsetotheongoing
trendtowardscentralisingcashdistributionservices.Tobestfacilitatecash
supply and distribution in the Geneva area, the SNB decided to open an
agencyattheGenevacantonalbankwitheffectfrom1February2012.
Implementationofmonetarypolicy
Cashsupplyanddistribution
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12 AccountabilityreportSNB
Unexpectedtechnicalproblemswereencounteredinanearlyproduction
stageofthenewbanknoteseries,whichhavedelayedtheissueofthenewseri es
byatleastoneyear.
(4)TheSNBfacilitatesandsecuresthefunctioningofcashlesspayment
systems.Itmaintainssightdepositaccountsforthebanks,steerstheSIC
interbankpaymentsystemandparticipatesintherelevantpaymentcommit-
tees.In2011,atopicofparticularrelevancewaswhetherinthefuturethe
SwissfrancshouldbeincludedinTARGET2-Securities,thesecuritiessettlement
systemdevelopedbytheEuropeanCentralBank(ECB).FollowingnegotiationswiththeECBanddiscussionswiththebanks,aswellaswithSIXGroupLtd,
as operator of the Swiss nancial market infrastructure, the SNB decided
againstmakingtheSwissfrancavailableasasettlementcurrency.
(5)TheSNBsassetsfullimportantmonetarypolicyfunctions.They
consistmainlyofgoldandforeigncurrencyassets(currencyreserves)and,to
alesserextent,ofassetsinSwissfrancs.Theirsizeandcompositionaredeter-
minedbytheestablishedmonetaryorderandtherequirementsofmonetary
policy.Attheendof2011,theSNBsbalancesheettotalwasCHF346billion,
whichwasCHF76billionhigherthanoneyearearlier(CHF270billion).The
increaseismainlyduetotheforeigncurrencyreserves,whichincreasedby
CHF62billionasaresultofinvestmentsinconnectionwithforeignexchangeswapsagainstSwissfrancs,valuationgains,andforeigncurrencypurchases.
Themostimportantriskfactorsforthecurrencyreservesareexchange
ratesandthegoldprice.Owingtotheincreasedlevelofthesereservesand
higher volatility,theirriskexposure has risen considerably. Asa resultof
valuationgainsongoldandonforeigncurrencyinvestments,aswellascurrent
earningsontheseassets,returnsonthecurrencyreserveswerepositive.
(6)TheNBAconfersontheSNBthemandateofcontributingtothe
stabilityofthenancialsystem.Indoingso,itworksinclosecooperation
withtheSwissFinancialMarketSupervisoryAuthority(FINMA),theFederal
DepartmentofFinance(FDF),aswellasforeignauthoritiesandinternational
organisations.In2011,theSNBwasactivelyinvolvedinimplementingthetoobigtofailrecommendationsofthecommissionofexpertssetuptoexamine
waysoflimitingeconomicrisksposedbylargecompanies.Alegislativepro-
posaltothiseffectwaspassedbyparliamentin2011.Onmacroprudential
oversight,theSNBwasinfavouroftherapidintroductionofacountercyclical
capitalbuffer.Aspartoftheoversightofsystemicallyimportantpaymentand
securitiessettlementsystems,theSNBassessedcompliancewiththeregu-
latoryrequirementsandmonitoredanumberofprojectsundertakenbythe
systemoperators.
Cashlesspaymenttransactions
Assetmanagement
Financialsystemstability
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TheSNBloangrantedinautumn2008tothestabilisationfundtotake
overilliquidassetsfromUBSwasfurtheramortisedin2011,andthefunds
overallriskfurtherreduced.
(7)TheSNBparticipatesininternationalmonetarycooperationac-
tivities.Importantbodies are the International Monetary Fund (IMF), the
BankforInternationalSettlements(BIS),theFinancialStabilityBoard(FSB)
andtheOrganisationforEconomicCo-operationandDevelopment(OECD).IMF
lendingtomembercountriesineconomicdifcultiesreachedarecordhighin
2011.WithregardtoSwitzerlandsparticipationintheupcomingincreaseinIMFquotas,theFDFdraftedafederaldecreewhichwillbevotedoninparlia-
mentin2012.Duetostrongdemandforloans,theIMFalsodecidedtoexpand
theNewArrangementstoBorrow(NAB).Thisexpansionbecameeffectivein
March2011.FortheSNB,theexpansionoftheNABmeantanincreaseinits
maximumloancommitmentfromCHF2.2billion(1.5billionSpecialDrawing
Rights,orSDRs)toCHF15.7billion(SDR10.9billion).Switzerlandalsopledged
CHF720million(SDR500million)toaugmenttheIMFsPovertyReductionand
GrowthTrust.TheloantothisfundisgrantedbytheSNBandguaranteedby
theConfederation.
(8)TheSNBprovidestheSwissConfederationwithbankingservicesin
theareasofpaymenttransactionsaswellasliquidityandsecuritiesmanage-ment.Moreover,itissuesmoneymarketdebtregisterclaimsandbondsforthe
Confederationandcarriesoutpaymenttransactionsonitsbehalf.
(9)TheSNBcompilesstatisticaldataonbanksandnancialmarkets,
the balance of payments, direct investment, the international investment
positionandtheSwissnancialaccounts.Indoingso,itworkswiththe
appropriate ofces of the Confederation, FINMA, authorities from other
countriesandinternational organisations.In 2011,fournewsurveyswere
introduced, namely the survey on bank lending, which was initially of a
temporarynature,thesurveyonloanquality,theadditionalsurveyonthe
mortgagemarket,andthesurveyoncustomerpaymenttransactions.
Internationalmonetarycooperation
BankingservicesfortheConfederation
Statistics
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1 Monetarypolicy
1.1 Mandateandmonetarypolicystrategy
Article 99 of the Federal Constitution entrusts the Swiss National
Bank(SNB),asanindependentcentralbank,with theconductof monetary
policyintheinterestsofthecountryasawhole.Themandateisexplainedin
detailintheNationalBankAct(art.5para.1NBA),whichrequirestheSNB
toensurepricestabilityand,insodoing,totakedueaccountofeconomic
developments.
Pricestabilityisanimportantconditionforgrowthandprosperity.
Ination(asustainedincreaseinthepricelevel)anddeation(asustained
decreaseinthepricelevel)bothhampereconomicdevelopment.Theycompli-
catedecision-makingbyconsumersandproducers,leadtomisallocationsof
labourandcapital,resultinincomeandassetredistributions,andputthe
economicallyweakatadisadvantage.
By seekingto keep prices stable, the SNB createsan environment
inwhichtheeconomycanexploititsproductionpotential.Theaimofthe
SNBsmonetarypolicyistoensurepricestabilityinthemediumandlong
term. Short-term priceuctuations, however, cannot be counteracted by
monetarypolicy.
TheSNBmaintainspricestabilitybyensuringappropriatemonetary
conditions.Thismeanskeepinginterestratesandthesupplyofmoneyand
creditalignedtotheprevailingeconomicsituation.Lowinterestratespromote
thesupplyofmoneyandcredittotheeconomy,therebyincreasingthedemand
forgoodsandservices.Overtime,thisleadstoexcessiveuseofproduction
capacity,resultinginariseinthepricelevel.Atthesametime,thereisalso
ariskthatexcessesmayoccur,particularlyonthenancialandrealestate
markets.Conversely,increasinginterestratesleadtoareductioninthesupply
ofmoneyandcredit,therebyholdingbackaggregatedemand.Theutilisation
ofproductioncapacityfallsandthepriceleveldeclines.
TheSNB money policy strategy sets outthe manner inwhich the
NationalBankintendstofullitsstatutorymandate.Itconsistsofthefol-
lowingthreeelements:adenitionofpricestability,aconditionalination
forecastoverthesubsequenttwelvequarters,andatargetrangeforarefer-
ence interestrate the three-month Swissfranc Libor (London Interbank
OfferedRate).Since6September2011,aminimumexchangeratefortheeuro
againsttheSwissfranchasalsoapplied.
Constitutionalandlegalmandate
Signicanceofpricestability
Appropriatemonetaryconditions
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TheSNBequatespricestabilitywithanannualriseinthenational
consumerpriceindexoflessthan2%.Deationinotherwords,aprotracted
declineinthepricelevelisalsoregardedasabreachoftheobjectiveofprice
stability.Withitsdenitionofpricestability,theSNBtakesintoaccount,in
particular,thefactthattheconsumerpriceindextendstoslightlyoverstate
inationandthatinationcannotbemeasuredprecisely.
TheinationforecastpublishedquarterlybytheSNBperformsadual
function.First,itservesasthemainindicatorforthemonetarypolicydeci-
sion.Second,itprovidesanimportantreferencepointforthegeneralpublicandisakeyelementincommunication.
The SNBs ination forecast is based on the assumption that the
referenceinterestratecommunicatedatthetimeofpublishingwillremain
unchangedoverthenextthreeyears.Itisthereforeaconditionalforecast
andshowshowtheSNBexpectsconsumerpricestomoveintheeventthat
monetarypolicydoesnotchange.Itcannotbecomparedwithforecastsby
commercialbanksorresearch institutions, as these institutionsgenerally
factoranticipatedinterestratemovementsintotheirforecasts.
Inationforecasts are madequarterly,and covera periodofthree
years.Thiscorrespondsroughlytothetimerequiredforthetransmissionof
monetarypolicyimpulsestooutputandprices.Withitsthree-yearforecast,theSNBtakesaccountofthefactthattheeffectsofmonetarypolicyare
laggedanditthereforehastoadoptaforward-lookingstanceinitsmonetary
policydecisions.
ForacountrylikeSwitzerlandwithitsstronginternationalintegration,
developmentsintheglobaleconomyplayanimportantrole.Consequently,
theinationforecastisbasedonassumptionswithregardtothefuturepath
oftheglobaleconomy.Indicatorsrelatedtothebusinesscycle,aswellas
exchangeratesandcommodityprices(crudeoil),arealsoofrelevancefor
short-termchangesinthepricelevel.Inaddition,changesinthemonetary
aggregatesandinlendingaretakenintoaccountintheinationforecast,
sincemediumandlong-termpricemovementsdepend,toalargeextent,onmoneysupply.
TheSNBregularlyissuesstatementsonthedevelopmentofthemost
importantindicatorsfactoredintoitsinationforecast.Itprovidesdetailsof
themodelsitusesinanumberofitspublications.
Denitionofpricestability
Conditionalination
forecast
Preparingtheconditionalinationforecast
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Iftheinationforecastshowsvaluesthatlieoutsidethepricestabil-
ityrange,anadjustmentofmonetarypolicymaybenecessary.Thus,should
inationthreatentoexceed2%onasustainedbasis,theSNBwouldconsider
tighteningits monetarypolicy. Conversely, it would schedule a monetary
easingifdeationarytendencieswereidentied.However,theSNBdoesnot
reactmechanicallytotheinationforecast.Initsmonetarypolicydecisions,
italsoconsiderspotentialrisksthatarenotfactoredintotheforecastmodels.
TheSNBimplementsitsmonetarypolicybyxingatargetrangefor
thethree-monthSwissfrancLibor.Thetargetrangeusuallyextendsoveronepercentagepoint.Asarule,theSNBholdstheLiborinthemiddleoftherange.
SinceAugust2011,anarrowtargetrangeof0.00.25%hasapplied,withthe
SNBmaintainingaLiborofclosetozero.Since6September2011,aminimum
exchangeratefortheeuroagainsttheSwissfranchasalsoapplied.
TheLiborcorrespondstoatrimmedmeanofthecurrentinterestrates
chargedby12leadingbanksforunsecuredinterbankloansandispublished
dailybytheBritishBankersAssociationinLondon.Althoughfewunsecured
loansarecurrentlybeingconcludedontheinterbankmarket,theLiborremains
animportant benchmarkfor many credittransactionsintheeconomy and
thereforeplaysakeyroleinthemonetarypolicytransmissionmechanism.
TheSNBconductsanin-depthmonetarypolicyassessmentinMarch,June, September and December. Each of these assessments results in a
monetarypolicydecisionandthepublicationoftheconditionalination
forecast.TheSNBsetsoutthereasonsforitsdecisioninapressrelease.
InJuneandDecember,it providesadditionalinformationonthemonetary
policydecisionatanewsconference.Ifnecessary,theSNBmaytakemonet-
arypolicymeasuresatanytimebetweenregularassessmentdates.Economic
developments and the background to the monetary policy decision are
presentedinthequarterlymonetarypolicyreport,whichispublishedinthe
Quarterly Bulletin.
Reviewofmonetarypolicybasedoninationforecast
Targetrangeforthethree-monthLibor
Quarterlypolicyassessments
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1.2 Challengesformonetarypolicy
The repercussions ofthe nancial crisis whichshook the global
economyin2008/2009werefeltagainin2011,asinpreviousyears.With
scalstimuli coming toan end, therecoveryof theglobaleconomy lost
strength. In addition, the European sovereign debt crisis and the scal
problemsinotheradvancedeconomiesunderminedcondenceinnancial
markets.
TheappreciationoftheSwissfranccontinuedinthersthalfof2011.
InJuly,thisappreciationacceleratedfurther.Thesubstantialovervaluation
oftheSwissfrancbecameanacutethreattoeconomicactivityinSwitzer-
landandincreasedthedownsideriskstopricestability.InAugust,theSNB
tookmeasurestocounterthestrengthoftheSwissfrancbyloweringthe
rateofinterestatanunscheduledmeeting,andsignicantlyincreasing
liquidity.However,inviewofthehighlevelofuncertaintyonthenancial
markets,theSwissfrancappreciatedfurtherandalmostreachedparity
withtheeuro.On6September,theSNBsetaminimumexchangerateof
CHF1.20pereuro.
In2011,interestratespersistedataverylowlevel.Atthesame
time,pricesontherealestatemarketcontinuedtorise,leadingtostrong
growth in lending and promoting adverse developments in the nancial
sector,withcorrespondingrisksfornancialstability.TheSNBstressedhow
importantitwasthatinstrumentsaimedatmakingaprecautionarycontri-
butionintheareaofnancialstabilitybeintroducedsoon.
Duringthecourseoftheyear,therateofinationvariedbetween
1.0%and0.7%.Inthersthalfoftheyear,theSNBstressedthatmonetary
policywouldneedtobetightenedinduecourse,owingtothefactthat,
inthelongterm,ther iskofrisingpriceswouldhaveincreasedwiththe
expansionarymonetarypolicy.WiththemassiveappreciationoftheSwiss
francandthedownturnintheinternationaleconomy,thesituationchanged
fundamentally.Theriskofinationdeclinedand,fromthemiddleoftheyear,
shortandmedium-termdeationrisksbecamethefocusofattention.
Escalationofdebtcrisis
AppreciationofSwissfrancposesthreat
Risktonancialstability
Verylowination
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1.3 Internationaleconomicdevelopments
In2011,thepaceofglobaleconomicrecoveryslowed,asdidworld
trade.Oneyearearlier,globalindustrialoutputhadrisenbyaround10%,
butin2011itgrewbyonlyhalfasmuch.Thephasingoutofscalstimuli
contributedtothisresult.Inthersthalfoftheyear,moreover,theglobal
economywasaffectedbytheearthquakeandtsunamicatastropheinJapan,
whichcausedmajordisruptionsofglobalsupplychainsandproductionlosses.
Laterintheyear,theEuropeansovereigndebtcrisisemergedasathreatto
theglobaleconomy. Theassociatedrise inuncertaintyregardinggrowth
prospectshadageneraldampeningeffectonbusinessandconsumercon-
dence,aswellasonthatofnancialmarkets.
Althoughthedebtprobleminitiallyaffectedonlyafeweuroarea
countries,inthesecondhalfoftheyearthelossofcondenceincreasingly
spilledoverintolargereuroareaeconomies.Asaresult,yieldsonSpanish,
Italian and French government bonds widened markedly over those on
Germangovernmentbonds.Inthepoliticalarena,thecrisisledtounrest
andachangeofgovernmentinanumberofcountries.Inthefaceofenor-
mouspressurefromthenancialmarkets,Europeadoptedacourseofscal
consolidation.Spain,Italy,France,Portugal,IrelandandGreeceallannounced
drasticcutsinabidtoreducebudgetdecits.Yet,despitetheextension
oftheEuropeanFinancialStabilityFacility(EFSF),andanumberofother
measuresaimedatcontainingthesovereigndebtcrisis,alastingsolution
hassofarprovedelusive.
Asthecrisisdeveloped,thestabilityofthoseEuropeanbankswith
large holdings of European sovereign bonds was increasingly called into
question.Tobolstercondenceinthebankingindustry,governmentsadopted
strictercapitalregulations.Anumberofbankswereobligedtoconsolidate
theirbalancesheets.Thisreducedtheirabilitytolend.Privatehouseholds
endeavouredtoreducetheirdebtburden,andreinedintheirspending
accordingly.Inaddition,insomecountries,includingtheUS,theUKand
Spain,fallinghousepricesmadeitmoredifculttorenancemortgagesat
morefavourableconditions.Thisconstrainedhouseholdsspendingability
evenfurther.
Slowdowninglobaleconomicrecovery
EscalationofEuropeansovereigndebtcrisis
Widespreadpressuretoreducedebtburden
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PoliticaltensionintheArabstatesledtoamarkedincreaseinoil
prices during therst four months of the year, reducing thepurchasing
powerofprivatehouseholdsinoil-importingcountries.Overtherestofthe
year,oilpricesfellslightly,butweresubjecttofairlysharpuctuations.
Theeurobegantheyearbyappreciatingsubstantiallyagainstmost
othercurrencies,onlytocomeunderincreasingpressureinthesecondhalf
oftheyearagainstthebackdropofthegrowingsovereigndebtcrisis.Atthe
endoftheyear,theeurowasworthUSD1.29.AgainsttheyenandtheSwiss
franc,whichwereregardedassafehavencurrencies,theeurodepreciatedsharplyoverthesummer.AftertheSNBimposedaminimumexchangerate
of CHF1.20 to the euro on 6 September, the euro uctuated between
CHF1.20andCHF1.24uptotheendoftheyear.
IntheUS,GDProseby1.7%in2011,comparedto3.0%in2010.
Economicgrowth,whichhadweakenedsteadilythroughoutthesecondhalf
of2010,almostcametoahaltintherstquarterof2011.Highenergy
prices, togetherwith weak income and employment growth, weighedon
demand.Inaddition,conditionsontherealestatemarketremaineddifcult,
owingtothepersistentoverhangofemptyhousing,whichmeantthat,once
again, the construction industry provided virtually no demand stimulus.
Startinginthesecondquarter,economicgrowthpickedupslightly,supportedbyapersistentlyexpansionarymonetarypolicy,aswellasacatch-upeffect
intheautomobileindustry.Consumerspendingbyprivatehouseholdsre-
covered,andunemploymentfellslightly.Towardstheendoftheyear,there
wasa strengthening inbusiness and consumer condence, boostedby a
decisioninAugustbytheUSCongresstoraisethestatutorydebtceilingand
therebyavertthecountrysloomingsovereigndefault.Atthesametime,the
governmentmadeacommitmenttosignicantlyreducethenationaldecit
overthenexttenyears.
At1.4%,euroareaGDProseatroughlythesamepaceasinthepre-
viousyear.However,economicperformancevariedfromcountrytocountry.
InheavilyindebtedmemberstateslikeGreeceandPortugal,economicactivitycontractedsharplyasaresultofwide-ranginggovernmentausteritypro-
grammes and increasedfunding costs. Inthe core countriesof theeuro
area,GDPcontinuedtoexpanduntilthethirdquarter.However,thegrowing
nervousnessonnancialmarketsandmountingconcernsovertheEuropean
bankingsectoralsoweighedonthesecountrieseconomicperformanceatthe
endoftheyear.Giventheunfavourablenancialsituation,manycountries
foundthemselvesunabletoreplaceexpiringeconomicstimulusprogrammes
withnewscalmeasures.
Markedlyhigheroilpricesatbeginningofyear
Increasingpressureoneuro
WeakstarttoyearforUSeconomy
Uneveneconomicgrowth
ineuroarea
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Thecatastrophicearthquakeandtsunamialongtheeastcoastof
JapantippedtheJapaneseeconomyintorecessioninthersthalfofthe
year.Althoughitwaspossibletorecouphalfofproductionlossesduringthe
thirdquarter,theeconomicsituationcontinuedtobechallenging,asthe
strongappreciationoftheyenagainsttheeuroandtheUSdollarhampered
exportcompetitiveness.Afurtherdownsidefactorinautumnwastheoods
inThailand,whichbroughtimportantproductionplantsfortheJapanese
electronicsandautomobileindustriestoastandstill.AverageGDPdeclined
by0.7%year-on-year.TheJapanesegovernmentreleasedsubstantialstatefundsJPY18,000billionor3.8%ofGDPforreconstructionactivitiesin
theeastofthecountry.Inaddition,asameasuretocombatthestrengthof
thecurrency,itsetupacreditfacilitytotallingUSD100billion,aimedat
facilitatingthefundingofJapanesermspurchasesofcompaniesabroad.
The emerging economies performed robustly in 2011, helping to
offset the dampening effect on the global economy stemming from the
slowdown in growth among the advanced economies. However, at 9.2%,
Chinaseconomygrewslightlymoreslowlythantheaveragerecordedover
thepasttenyears.At7.1%,theIndianeconomyalsoexpandedsomewhatless
rapidlythaninthepreviousyear.In SouthKorea,Taiwan,HongKongand
Singapore,businessactivityintheelectronicsindustry,amajorindustryintheregion,slowedasaresultofweakerdemandfromthelargeadvanced
economies.InLatinAmerica,growthwasgenerallyrobust,althoughhere,
too,thepaceofeconomicgrowthslowedtowardstheendoftheyear.
Initially, consumer price ination continued to increase in 2011,
drivenmainlybyrisingenergyandrawmaterialsprices.Moreover,core
inationameasureofinationthatexcludesfoodandenergypricesalso
roseslightly;insomeeuroareacountries,thiswaspartlyduetoincreasesin
indirecttaxesandadministeredprices.Inanumberofemergingeconomies,
robusteconomicgrowthandtheassociatedriseinproductioncapacity
utilisationrateswerethemainfactorsbehindtheincreaseincoreination.
Towardstheendoftheyear,therewasageneraleasingofinationarypressureasaresultoftheslowingeconomy.
DifcultyearforJapan
Robustperformanceinemergingeconomies
Higherinationratesworldwide
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2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
United States
Japan
Euro area
United Kingdom
Switzerland
In real terms,index: 100 = period average(Q1/2007-Q4/2011)Sources: SECO, ThomsonFinancial Datastream
Level of gross domestic product
92
94
96
98
100
102
104
106
United States
Japan
Euro area
United Kingdom
Switzerland
Year-on-year change
in percent, in real termsSources: SECO, ThomsonFinancial Datastream
Growth of gross domestic product
12
10
8
6
4
2
0
2
4
6
United States
Japan
Euro area
United Kingdom
Switzerland
Consumer prices, year-on-year changein percentSources: SFSO, ThomsonFinancial Datastream
Inflation
3
2
1
0
1
2
3
4
5
6
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Against the background of re-emerging tensions on the nancial
markets,attheendofNovember,theBankofCanada,theBankofEngland,
theBankofJapan,theEuropeanCentralBank(ECB),theUSFederalReserve
andtheSwissNationalBankannouncedjointmeasurestoexpandtheir
capacityforprovidingliquiditytotheglobalnancialsystem.Themeasures
wereaimedatmitigatingtheimpactofnancialmarkettensiononthesupply
ofcredittohouseholdsandcompanies,andtherebysupportingeconomic
growth.Forthispurpose,temporarybilateralliquidityswaparrangements
wereagreedbythecentralbanksconcerned,inorderthatsufcientliquiditycouldbeprovidedinallcurrencyzones,shouldmarketconditionsrender
itnecessary.Theyalsoagreedtolowerthepricingonexistingtemporary
liquidityswapagreementsinUSdollarsby0.5percentagepoints,to0.5%.
The central banks of most advanced economies maintained their
expansionarymonetarypolicycourse.Inanenvironmentofhighunemploy-
mentandsubduedgrowthprospects,theFederalReserveheldthetarget
rangeforitsreferenceinterestrateunchangedat0.00.25%.Moreover,in
August,itannouncedthatitdidnotintendtoraisethereferenceratebefore
mid-2013,andreiteratedthisstanceoverthenextfewmonths.InJune,as
expected,theFederalReservewoundupitssecondlargesecuritiespurchase
programme,whichamountedtoUSD600billionandwasaimedatbringingaboutaquantitativeeasingofmonetarypolicy.However,inordertobring
long-terminterestratesdownfurther,fromSeptemberonwards,theFederal
Reserveextendedtheaveragematurityofitssecuritiesportfolio.Inaddition,
tosupportthemortgagemarketitbegantorollovermaturingmortgage-
backedsecuritiesintosimilarinstruments,insteadofintogovernmentbonds
ashitherto.
Inthelightofgrowinginationarypressure,theECBraiseditsmain
renancingrateinAprilandJuly,from1.0%to1.5%.Subsequently,the
spreadofthesovereigndebtcrisisledtoachangeofcourse.Whentension
ongovernmentbondmarketsincreasedinAugust,theECBuseditsnancial
marketstabilisationprogramme,launchedinMay2010,topurchaseasub-stantialamountofgovernmentbondsissuedbynanciallyexposedeuroarea
memberstates.Tosupportbanklending,italsolaunchedasecondcovered
bondpurchaseprogramme;therstsuchprogrammehadbeencompletedin
mid-2010.InNovemberandDecember2011,itreduceditsmainrenancing
rate,tonishat1.0%.AlsoinDecember,itdecidedtocarryoutthree-year
renancingoperations,tolowertheminimumreserveratioforbanks,and
toexpandthelistof eligiblecollateralfor transactions withEurosystem
centralbanks.
Coordinatedliquiditymeasuresbycentralbanks
ExpansionarymonetarypolicyintheUS
inEurope
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TheBankofJapanmaintaineditszerointerestratepolicy.Inadd-
ition,itexpandedthesecuritiespurchaseprogrammeintroducedinOctober
2010byJPY20,000billiontoJPY55,000billion,andengagedinforeign
exchangemarketinterventionsforatotalamountofoverJPY14,000billion
inordertocountertheyensappreciation.
Tocounterthethreatofination,centralbanksinanumberofemer-
ging economies initially tightened their monetary policy. Chinas central
bankonceagainraiseditsreserverequirementratioforbanksaswellasits
referenceinterestrates.Inaddition,itallowedtherenminbitoappreciatefurther.Bytheendoftheyear,theChinesecurrencyhadgainedsome5%
againsttheUSdollar,althoughonatrade-weightedbasistheappreciation
isslightlysmaller.TheReserveBankofIndiatightenedinterestratesina
seriesofstepsuptoOctober.
Towardstheendoftheyear,thefocusshiftedtoriskstothereal
economy.InOctober,Singaporesmonetaryauthoritybegantoloosenmon-
etarypolicy.AttheendofNovember,thePeoplesBankofChinalowered
itsreserverequirementratioforbanks.Achangeofpolicyalsotookplace
inBrazilduringthesecondhalfoftheyear.
andinJapan
Emergingeconomiesrsttighten
thenloosenmonetarypolicy
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1.4 EconomicdevelopmentsinSwitzerland
The increasing deterioration in the international environment in
2011 weighed heavily onthe Swiss economy. Overall,GDProse by 1.9%,
followinganincreaseof2.7%in2010.
Thisfairlyimpressivegrowthwasmainlyduetothefavourablegrowth
momentuminthersthalfoftheyear.Inthesummer,thestrongappreci-
ationoftheSwissfrancseverelyimpairedtheabilityofSwisscompaniesto
compete onpricing. At thesame time, theappreciableslowdown in the
globalindustrialcyclemadeitincreasinglydifcultforexporterstooffset
exchangerate-relatedmarginlossesthroughhighersales.Theuncertainty
overtheeconomicoutlookincreased,particularlyamongexport-oriented
companies.The introduction of the minimum exchange rate againstthe
euroon6Septembereasedthesituationandgavemanycompaniesgreater
planningsecurity.
Astheeconomyslowed,capacityutilisationalsobegantodecline.
Inthenalmonthsoftheyear,unemploymentroseagainslightly,forthe
rsttimeinalmosttwoyears.
Realgrossdomesticproduct
Year-on-yearchangeinpercent
2007 2008 2009 2010 2011
Privateconsumption 2.3 1.4 1.4 1.7 1.0
Governmentconsumption 0.3 2.7 3.3 0.8 1.7
Investment 5.1 0.5 4.9 7.5 3.9
Construction 2.3 0.0 3.0 3.5 2.5
Equipment 11.1 0.8 10.8 10.9 5.1
Domesticdemand 1.4 0.5 0.6 1.5 0.9
Exportsofgoodsandservices 9.6 3.1 8.6 8.1 3.7
Aggregatedemand 4.4 1.5 3.0 4.0 1.9
Importsofgoodsandservices 6.1 0.3 5.5 8.0 2.5
Grossdomesticproduct 3.6 2.1 1.9 2.7 1.9
Sources:SECO,SFSO,SNB
Lowergrowth
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The pace of goods and services exports slackened considerably in
2011asaresultofthestrongSwissfrancandtheglobaleconomicslowdown.
Inthethirdquarter,theydeclinedforthersttimesincetheendofthe
2008/2009 recession. Although they recovered substantially in the fourth
quarter,theiraverageannualgrowthwasmodestatbest.Asregardsgoods
exports,theimpactofthedownturninmanufacturingwasprimarilyreected
inlowerexportsofmachineryandmetalproducts.Bycontrast,forexportsof
pharmaceuticalsandwatches,theupwardtrendcontinued.Intheservices
sector,cross-borderbankingbusinessandtourismdeclinedsignicantly.Importsroseonlymarginally,despitethestrongSwissfranc.Thesoft-
eningoutlookandthegrowinguncertaintyweighedonthedemandforcapital
goodsandintermediategoods.Bycontrast,theincreasedforeignpurchasing
powerofdomestichouseholdsledtoariseinimportsofconsumergoodsin
particularautomobilesaswellasinexpenditureontourismservicesabroad.
Equipmentinvestmentlostconsiderablemomentumoverthecourseof
theyear;havingincreasedslightlyintherstquarter,itthendeclinedover
thenexttwoquarters.Thismainlyreectedthedifcultconditionsfacingthe
exportindustry,whosesalesoutlookandprotabilitydeterioratedasaresult
ofthestrongSwissfrancandtheslowdownintheglobaleconomy.Therewere
signsofarecoveryinthefourthquarter.Constructioninvestmentcontinuedtosupporttheeconomy.Favour-
ablenancingconditionsandcontinuingimmigrationhadapositiveeffecton
residentialconstructioninvestment.Civilengineeringwasrobust,beneting
mainlyfrompublicsectorinfrastructureprojects.However,commercialcon-
structiondeclined.
At1.0%,thegrowthinprivateconsumptionin2011wasconsiderably
weakerthaninthepreviousyear.Thiswaspartlyattributabletothegrowing
uncertaintyamonghouseholdsaboutfutureeconomicdevelopments,which
contrasted with the positive growth in household income. However, the
declineinconsumptiongrowthmaybeslightlyoverstated,asthestrength
oftheSwissfrancledconsumers tomake morepurchases abroad,andthecoverageofsuchpurchasesintheconsumerspendingstatisticsisincomplete.
Cross-bordershoppingprimarilyaffectedconsumptionoffood,clothingand
shoes domestic salesin these areasactuallyfell. By contrast, consumer
expenditureonhousingandhealthcarebenetedfromthecontinuingstrong
populationgrowth,andexperiencedafurthersubstantialincreasein2011.
Publicsectorspendingroseby1.7%,andalsocontributedtoeco-
nomicgrowth.
Slowdowninforeigntrade
Decliningequipmentinvestment
Supportfromconstructioninvestment
Weakergrowthinconsumption
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Forsomeindustries,theimpactoftheeconomicslowdownwascon-
siderable.ManufacturingandtourismwerehitbythestrongSwissfrancand
waningforeigndemand.Inaddition,banksfelttheimpactoftheexceptionally
highlevelofuncertaintyonthenancialmarkets,aswellasthestructural
changesemergingintheglobalbankingindustry.Inareaswithadomestic
focus,suchasconstruction,andinmostindustriesintheservicessector,
valueaddedincreasedfurther.
Afteranonlyslightlynegativeoutputgapwasrecordedatthebeginning
oftheyear,GDPgrowthfellbelowpotentialinthesecondhalfoftheyear.Asaresult,productioncapacityutilisationdecreased,andtheoutputgap
widenedagain.
In 2011, employment rose in both manufacturing and theservices
sector,insomecasesquitestrongly.Atthesametime,theseasonallyadjusted
rateofunemploymentdeclinedfrom3.4%inJanuaryto3.0%inSeptember;
although the decline was overstated to a certain extent due to one-off
statistical effects associatedwith changes inthelaw onunemployment
insurance.UpuntilDecember,therateofunemploymentincreasedto3.1%.
Thenumberofemployeesonshort-timeworkingalsoroseslightly,having
fallenalmosttozerointhethirdquarter.
Labourmarket
2007 2008 2009 2010 2011
Employmentintermsoffull-timeequivalents 1 3.2 2.7 0.3 0.6 1.1
Unemploymentrateinpercent 2.8 2.6 3.7 3.9 3.1
Numberofjobseekersinpercent 4.2 3.9 5.2 5.5 4.6
Swissnominalwageindex 1,2 1.6 2.0 2.1 0.8 1.2
Compensationofemployees,nominal1 5.3 5.1 2.5 0.7 3.7
1Year-on-yearchangeinpercent.
22011:SNBforecast.
Sources:SECO,SFSO
Impactvariedfromoneindustrytoanother
Outputgapopensagain
Robustlabourmarket
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2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
GDP
Private consumption
Investment in construction
Investment in equipment
Exports
Year-on-year changein percent, in real terms
Source: SECO
Gross domestic product and components
20
15
10
5
0
5
10
15
20
Imports of goods andservices
Exports of goods andservices
In CHF billions,in real terms,seasonally adjusted
Source: SECO
Foreign trade
40
45
50
55
60
65
70
75
Unemployed persons
Job seekers
In thousands,seasonally adjustedand smoothed
Source: SECO
Labour market
75
100
125
150
175
200
225
250
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Afterweakgrowthin2010,wagesrosesomewhatmorestronglyin
2011.AccordingtoSNBestimates,nominalwagesasmeasuredbytheSwiss
wageindexwereup by1.2%, following0.8% in 2010. The total wage bill
(compensationofemployees)as measuredbythenationalaccountsroseby
3.7%. After deduction of1.1% employment growth calculated in terms of
full-timeequivalents,thisresultedinariseinnominalwagesof2.6%,follow-
ingaslightincreaseof0.1%thepreviousyear.
Sinceconsumerpriceinationin2011amountedtoonly0.2%,real
wages therefore rosemarkedly. They increased by 1.0% according to theSwisswageindex,andby2.4%accordingtothenationalaccounts;in2010
theyhadfallenslightly.
The Swiss franc appreciation and the economic slowdownledto a
pronounceddeclineinproducerandimportprices(pricesoftotalsupply)in
thesecondhalfoftheyear.Thepricesofbothgoodsearmarkedforexportand
thoseproducedforthedomesticmarketcameunderpressure.Brokendown
accordingtocategoryofgoods,pricesforbothconsumergoodsandcapital
goodstrendeddownwards.Onlyenergypricesroseappreciablythroughout
theyear.
In2011,theconsumerpriceindex(CPI)roseby0.2%onaverage,after
anincreaseof0.7%theyearbefore.TheappreciationoftheSwissfrancinthersthalfoftheyearactedwithacertainlagonconsumerprices.InOctober,
annualination turnednegative; inDecember, it was 0.7%.At year-end,
pricesforimportedgoodsandservices(excludingoilproducts)were5.7%
lowerthanoneyear earlier the steepest decline sinceexible exchange
rateswereadoptedin1973.Butthepricesofdomesticallyproducedgoods
alsocameunderpressure,asconsumersincreasinglysoughtcheaperproducts
just across the border.Annual ination indomestic services, by contrast,
remainedaround1.0%throughouttheyear.
Strongriseinrealwages
Decliningproducerandimportprices
Declineinconsumerpricesatyear-end
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2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
Producer and import prices
Producer prices
Import prices
Year-on-year changein percentSource: SFSO
Producer and import prices
12
10
8
6
4
2
0
2
4
6
Consumer prices
Domestic goods and services
Imported goods and services
Year-on-year changein percentSource: SFSO
Consumer prices
8
6
4
2
0
2
4
6
8
Consumer prices
Trimmed mean
Dynamic factor inflation
Year-on-year changein percentSources: SFSO, SNB
Core inflation
1.5
1
0.5
0
0.5
1
1.5
2
2.5
3
3.5
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Nationalconsumerpriceindexandcomponents
Year-on-yearchangeinpercent
2010 2011 2011
Q1 Q2 Q3 Q4
Consumerpriceindex,overall 0.7 0.2 0.6 0.4 0.4 0.5
Domesticgoodsandservices 0.6 0.6 0.6 0.6 0.7 0.3Goods 0.1 1.3 1.0 1.0 1.1 2.1
Services 0.8 1.1 1.1 1.1 1.2 1.1
Privateservices(excludingrents) 0.6 0.8 0.6 0.8 0.9 0.9
Rents 1.1 1.3 1.5 1.3 1.3 1.2
Publicservices 0.9 1.8 2.0 1.8 1.8 1.4
Importedgoodsandservices 0.9 0.7 0.5 0.3 0.4 2.6
Excludingoilproducts 1.3 2.5 1.3 1.9 1.8 5.0
Oilproducts 13.9 9.3 10.5 8.9 7.5 10.5
Coreination
Trimmedmean 0.6 0.5 0.8 0.6 0.6 0.1
Dynamicfactorination 0.7 1.0 1.2 1.2 0.9 0.7
Sources:SFSO,SNB
Numerousshort-termuctuationscanhaveanimpactoninationas
measuredbytheCPI.Forthisreason,theSNBcalculatestwocoreination
rates,thetrimmedmeananddynamicfactorination(DFI),inordertoana-
lysetheinationtrend.Withthetrimmedmeansmethod,thosegoodsprices
recordingthegreatestmonth-on-monthchangeareexcludedfromtheCPI
basketeachmonth(15%ateitherendofthedistribution).DFIisameasureof
theinationtrendthattakesaccountofalargenumberofvariablescoveringthegoodsmarkets,thenancialmarketsandthelabourmarket.
Inationasmeasuredbycoreinationratesdecreasedsubstantially.
This conrms a broad-based decline in inationary pressure. DFIfellfrom
1.1%to0.6%betweenJanuaryandDecember.Thetrimmedmeanevendeclined
from0.7%to0.0%overthesameperiod.
Lowcoreination
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2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
Three-month Libor
Yield on ten-yearSwiss Confederation bonds
In percent
Money and capital market rates
0
0.5
1
1.5
2
2.5
3
3.5
CHF/USD
CHF/EUR
Nominal
Exchange rates
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Real
Nominal
40 trading partnersIndex: January 1999 = 100
Export-weighted Swiss franc exchange rates
90
100
110
120
130
140
150
160
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Drivenbypositivegrowthprospects,theyieldonten-yearConfeder-
ationbondsrosefrom1.7%atthebeginningofJanuarytoanannualhighof
2.1%inApril.ThefurtherescalationoftheEuropeansovereigndebtcrisisand
theworseningoutlookforglobaleconomicgrowthresultedinaighttosafe
investments, including those in Swiss francs. Subsequently, the yield on
ten-yearConfederationbondsfellconsiderably,reachinga historicallowof
0.7%inDecember.Averagedoutovertheyear,itcameto1.5%.Forthreeand
six-monthmoneymarketdebtregisterclaimsoftheConfederation,yieldshad
evenbeennegativesinceAugust.Thelowinterestratesledtoasubstantialincreaseinmoneyheldby
thedomesticprivatenon-banksectorin2011.TheannualaveragefortheM1,
M2andM3 monetaryaggregateswas 8.7%,7.9%and7.0%higher,respect-
ively,thaninthepreviousyear.Themonetarybase,whichiscomposedof
banknotesincirculationplussightdepositsofdomesticbankswiththeSNB,
declinedbyaround30%year-on-yearinthersthalfof2011.Inthesecond
half,itexpandedsharplyinthewakeoftheSNBsmeasurestocombatthe
strengthoftheSwissfranc.Averagedoutovertheyear,itwas52.7%higher
thanoneyearpreviously.
In2010,theSwissfranchadalreadygainedaround9%againstthe
euroandabout4%againsttheUSdollaronaveragefortheyearasawhole,anditcontinuedtostrengthenoverthersthalfof2011.Aftertheappreci-
ationgatheredpaceinJuly,on9AugusttheSwissfrancpeakedatCHF1.01
totheeuroandCHF0.71tothedollar.ComparedtotheaverageforDecember
2010, this represented an appreciation of 19% against the euro and 25%
againstthedollar.On6September,theSNBsetaminimumexchangerateof
CHF1.20pereuro.Subsequently,theeurostayedabovetheminimumrate.In
December2011,theaveragerateforoneeurowasCHF1.23,whileforthe
dollaritwasCHF0.93.
Therealexport-weightedexternalvalueoftheSwissfrancfor2011
averaged10%higherthanforthepreviousyear.Despitetheimpositionofthe
minimumexchangerateagainsttheeuro,inDecembertheexternalvalueoftheSwissfrancwasstill17%higherthantheaverageforthelast20years.
ExtremelylowConfederationbondyields
Stronggrowthinmoneysupply
HighexternalvalueofSwissfranc
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2007 2008 2009 2010 2011
2007 2008 2009 2010 2011
Monetary base
M1
M2
M3
In CHF billions
Level of monetary aggregates
0
100
200
300
400
500
600
700
800
Monetary base
M1
M2
M3
Year-on-year changein percent
Growth of monetary aggregates
50
0
50
100
150
200
250
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1.5 Monetarypolicyin2011
TheSNBsmonetarypolicydecisionsaresummarisedbelowintheform
inwhichtheywerepresentedfollowingitsquarterlymonetarypolicyassess-
ments.Informationisalso providedonthemeasurestaken bythe SNBin
AugustandSeptembertocombatthestrengthoftheSwissfranc.
AtthemonetarypolicyassessmentinMarch,theSNBdecidedtomain-
tainitsexpansionarymonetarypolicyinviewofthehighlevelofuncertainty
andthetensioninforeignexchangemarkets.Itleftthetargetrangeforthe
three-month Libor unchanged at 0.00.75% andcontinued to aimfor an
interestratearound0.25%.
Intherstquarter,theglobalrecoverywassomewhatstrongerthan
theSNBhadexpectedinDecember2010.However,theuncertaintyoverfuture
economicdevelopmentsremainedhighduetotheunrestinNorthAfricaand
theMiddleEast.Moreover,atthetime,theglobaleconomicconsequencesof
theearthquakeandtsunamicatastropheinJapanweredifculttoassess.
Despite the signicant appreciation of the Swiss franc, the Swiss
economygrewfasterthananticipatedatthebeginningoftheyear.Technical
capacityutilisationhadrisenfurther.Atthesametime,unemploymentand
short-timeworkinghadfallen.Businessexpectationsalsosuggestedthatthe
favourableeconomictrendwouldcontinue.However,delayedeffec tsfromthe
appreciationoftheSwissfrancweretobeexpected.Consequently,inMarch,
theSNBprojectedthatGDPgrowthin2011wouldslowtoabout2.0%.
Atthistime,monetaryconditionsreectedtheSNBsexpansionary
monetarypolicy.Thethree-monthLiborhadnotmovedoutofthelowerpart
ofthe target rangesince December 2010, remaining almost unchanged at
0.17%.Long-terminterestrateshadrisensincetheirtroughinAugust2010,
butwerestillatalowlevel.
Therealexport-weightedexternalvalueoftheSwissfrancpersisted
ata historicallyhigh level.Atthe sametime,theexchangerate was very
volatile.Sincemortgagelendingwasstillincreasingatafastpace,theSNB
expresseditscontinuedconcernaboutthesituationonthemortgageandreal
estatemarkets.
Monetarypolicydecisions
Monetarypolicyassessment
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Theconditionalinationforecastpublishedon17Marchwasbasedon
athree-monthLiborof0.25%.Duetoarenewedsharpincreaseinoilprices,
strongerdomesticgrowthandpositiveassumptionsfortheglobaleconomy,
theforecastfor2011showedaslightriseinination,withapeakinthethird
quarterattributabletoabaseeffect.Sincetheassessmentoftheination
outlookhadnotchangedsignicantlycomparedtoDecember2010,thepath
ofthenewforecastmatchedthatoftheoldforecastfrommid-2012.Towards
theendoftheforecasthorizon,inationrosebrisklyandmovedoutsidethe
rangewhichtheSNBequateswithpricestability.AtthemonetarypolicyassessmentinMarch,theSNBdrewattentiontothefactthattheexpansionary
monetarypolicy could not bemaintained over the entireforecast horizon
withoutcompromisingpricestabilityinthelongerterm.
Atitsquarterlyassessmentof16June,theSNBmaintaineditsexpan-
sionarymonetarypolicy.Thetargetrangeforthethree-monthLiborremained
unchangedat0.00.75%,andtheSNBannouncedthatitintendedtokeepthe
Liborwithinthelowerpartofthetargetrangeataround0.25%.
Even ifthe outlook had dampened somewhatin spring, the global
economicrecoverywascontinuing.Thelevelofcapacityutilisationinthe
Swisseconomywasrising.DespitethestrongappreciationoftheSwissfranc,
the economy continued to benet from robust international demand. For2011,theSNBmaintaineditsGDPgrowthforecastofaround2.0%.
At itsmonetary policy assessment in June, the SNB stressed the
risksincluding,inparticular,theunresolveddebtproblemsinanumberof
euroareacountries;afurtherriskarosefromthescalconsolidationmeas-
uresthatseveralcountrieswereforcedtoundertakedespitetheireconomic
fragility. The increase in commoditypriceswas alsoweighingonglobal
economicgrowthandposedariskforglobalination.InSwitzerland,the
mainriskswerestill,ontheonehand,theeffectsofthestrongSwissfranc
ontheexportindustryand,ontheother,thedangerofoverheatinginthe
realestatesector.
The path of the SNBs conditional ination forecast of June wasslightlyabovethatofMarchuntilthebeginningof2012.Thiswasduetothe
assumptionofhigheroilpricesandsomewhathigherimportprices.Thepath
ofthenewforecastfellbelowthatofMarchoverthecourseof2012because
oftheearlier appreciation oftheSwissfranc and theslightweakeningin
internationalgrowth.Towardstheendoftheforecastperiod,inationrose
briskly,movingoutsidethepricestabilityrange.TheSNBwarnedthat,given
these assumptions, the expansionary monetary policy could not be main-
tainedovertheentireforecasthorizonwithoutcompromisingpricestability
inthelongerterm.However,itdrewattentiontothefactthatahighlevelof
uncertaintywasassociatedwiththeconditionalinationforecast,duetothe
risksalreadymentioned.
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AfterthemonetarypolicyassessmentinJune,theappreciationofthe
Swissfrancacceleratedinanenvironmentofincreasedriskaversiononinter-
national nancial markets, driven by discussions about scal measures in
GreeceandItaly.InJulyalone,theSwisscurrencyappreciatedby7.2%against
theeuroand5.5%againsttheUSdollar.Accordingly,therealexport-weighted
Swissfrancexchangeratewas22%aboveitslong-termaverageinJuly.
On3August,theSNBbegantakingmeasurestocounterwhathadnow
becomeastrongovervaluationoftheSwissfranc.Itstatedthatthestrength
oftheSwissfrancwasthreateningthedevelopmentoftheeconomyandincreasingthedownsideriskstopricestabilityinSwitzerland.Tocombatthe
strengthoftheSwissfranc,theSNBinitiallyattemptedtoachieveafurther
easingofmonetarypolicywithitscustomaryinstruments.Forthisreason,it
narrowedthetargetrangefortheLiborfrom0.00.75%to0.00.25%with
immediateeffect,aimingforathree-monthLiborasclosetozeroaspossible.
Atthesametime,itannouncedthatitwouldsignicantlyincreasethesupply
ofliquiditytotheSwissfrancmoneymarketbyexpandingbankssightdeposits
attheSNBfromCHF30billiontoCHF80billionwithinafewdays.Despite
this,theSwissfranccontinuedtoappreciateand,on9August,almostreached
paritywiththeeuro.
On10August,theSNBexpandeditsmeasuresagainstthestrongSwissfranc. The risein risk aversion on the international nancial markets had
furtherintensiedtheovervaluationoftheSwissfrancinthepreviousdays.
TheSNBincreasedthetargetforbankssightdepositsattheSNBfromCHF80
billiontoCHF120billion.
On17August,theSNBagainintensieditsmeasuresagainstthestrong
Swissfranc.Althoughthemeasuresalreadytakenwerehavinganimpact,the
Swissfrancremainedmassivelyovervalued.Consequently,theSNBdecidedto
againincreasebankssightdepositsattheSNBsignicantly,fromCHF120
billiontoCHF200billion.Insodoing,itincreasedthedownwardpressure
onmoneymarketinterestratesinordertofurtherweakentheSwissfranc
exchangerate.
MeasurestakeninAugusttocounterstrengthofSwissfranc
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Q4 2010 Q1 2011 Q2 Q3 Q4
Q4 2010 Q1 2011 Q2 Q3 Q4
16.
12.
2010
17.
3.
2011
16.
6.
2011
3.
8.
2011
15.
9.
2011
15.
12.
2011
6
.9.
2011
3/10/17.
8.
2011
Three-month Libor
Target range
Daily values in percent
Three-month Libor
0
0.2
0.4
0.6
0.8
1
Sight deposits of domestic banks
Other sight deposits
Total sight deposits
Weekly averages, in CHF billions
Sight deposits at the SNB
0
40
80
120
160
200
240
280
CHF/EUR rate
Minimum exhange rateof CHF 1.20 per euro
Daily rates
CHF/EUR rate
1
1.1
1.2
1.3
1.4
1.5
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TheSNBsliquiditymeasuresachievedacertainamountofsuccess.
However,because ofcontinuinguncertainty onthe nancial markets and
furthernegativereportsabouttheeuroarea,upwardpressureontheSwiss
francpersistedandintensiedagainatthebeginningofSeptember.TheSNB
thereforedecidedinfavourofdirectinterventionontheforeignexchange
market.On6September,itannouncedthatitwouldnolongertolerateaEUR/CHF
exchangeratebelowaminimumrateofCHF1.20.Withthismeasure,theSNB
wastakingastandagainsttheacutethreattotheSwisseconomyandtherisk
ofdeationarydevelopmentsoriginatingfromthemassiveovervaluationoftheSwissfranc.TheSNBemphasisedthatitwouldenforcethisminimumrate
withtheutmostdeterminationandwaspreparedtopurchaseforeigncurrency
inunlimitedquantitiesforthispurpose.Itconsideredthat,evenatarateof
CHF1.20pereuro,theSwissfrancwasstillhighand,consequently,expected
ittoweakenovertime.Iftheeconomicoutlookanddeationriskssorequired,
theSNBwouldtakefurthermeasures.
Despite the introductionof theminimumexchangerate,theSNBs
monetarypolicyframework,withitsfocusonpricestability,remainedvalid.
Theminimumexchangerateprovidedthemonetarypolicyframeworkwithan
additionaloperationaltarget,asthetargetrangeforthethree-monthLibor
couldnotbeloweredanyfurther.Atitsquarterlyassessmentof15September,theSNBreafrmedits
commitmenttotheminimumexchangerateofCHF1.20pereuroseton6Sep-
tember.Itcontinuedtoaimforathree-monthLiboratzeroandannounced
thatitwouldmaintaintotalsightdepositsattheSNBatsignicantlyabove
CHF200billion.TheSNBconsideredthat,evenatarateofCHF1.20,theSwiss
francwasstillhighandexpectedthatitwouldweakenfurther.
Introductionofminimumexchangerateagainsteuroon6September
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The growthofthe global economyhadslowed substantially in the
courseof the second quarter.The outlook for the advancedeconomies,in
particular, had worsened considerably. Consequently, economic activity in
SwitzerlandwassufferingsimultaneouslyfromthestrongSwissfrancandthe
softeningininternationaldemand.TheSNBexpectedthatgrowthwouldcome
toahaltinthesecondhalfoftheyear.For2011asawhole,economicgrowth
of1.52.0%couldbeexpected,butonlybecauseofthefavourableeconomic
developmentinthersthalfoftheyear.Withoutthestabilisingeffec tofthe
minimumexchangerate,therewouldhavebeenasubstantialriskofdeationandrecession.
Uncertaintyaboutthefutureoutlookfortheglobaleconomyremained
exceptionallyhighandtherisksfortheglobalnancialsystemhadincreased
considerably.Thedeteriorationintheoutlookforgrowthandscalproblems
intheadvancedeconomieswerehavinganegativeimpactoncondencein
nancialmarketsworldwide.
The SNBs conditional ination forecast had shifted substantially
downwardsasaresultoftheappreciationoftheSwissfrancandthedeterior-
ationintheoutlookfortheglobaleconomy.Althoughtheforecastwasbased
onathree-monthLiborof0.0%andafurtherweakeningintheSwissfranc,
aperiodofnegativeinationwasprojected.Thereafter,inationwouldriseslowlytowardstheendoftheforecastperiod,to1.0%.Thus,therewasnorisk
ofinationinSwitzerlandintheforeseeablefuture.Therewere,however,
downsiderisksforpricestability.
Atitsquarterlyassessmentof15December,theSNBreafrmedits
commitmenttotheminimumexchangerateofCHF1.20pereuro.Itstressed
thatitwaspreparedtobuyforeigncurrencyinunlimitedquantitiesandto
continueenforcingtheminimumexchangeratewiththeutmostdetermin-
ation. It held the target range for the three-month Libor at 0.00.25%,
continuingtoaimforaLiborclosetozero.TheSNBstillconsideredtheSwiss
franctobehigh,andexpectedafurtherweakening.Itstoodreadytotake
furthermeasuresatanytimeiftheeconomicoutlookandtheriskofdeationsorequired.Inaddition,itwouldcontinuetomaintainliquidityatexception-
allyhighlevels,butwouldnotsetaspecictargetlevelforsightdeposits.
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Althoughthe global economyhad picked upslightly overall in the
thirdquarter,growthinEuroperemainedweak.InSwitzerland,thehighlevel
oftheSwissfrancsincethesummerwasweighingheavilyontheeconomy.For
2011,theSNBcontinuedtoexpectGDPgrowthof1.52.0%.Thiswasbecause
ofthefavourableeconomicdevelopmentinthersthalfoftheyear.For2012,
itwasexpectingeconomicgrowthintheorderof0.5%.
The international environment continued to be highly uncertain.
GivenSwitzerlands closeinterconnection withtheeuro area,thecountry
wouldbeseriouslyaffectedbyafurtherescalationintheEuropeansover-eigndebtcrisisandtheconsequencesthiswouldhaveontheinternational
nancialsystem.
In December, the SNBs conditional ination forecastwas adjusted
downwards once again. In the short term, ination dipped into negative
territoryfasterthanintheSeptemberforecast,owingtotheeffectsofthe
earliercurrencyappreciation,whichhadbeenstrongerthanexpected.Inthe
longerterm,theworseningofthegrowthoutlookfortheeuroareawasdamp-
eningination.Althoughtheforecastwasbasedonathree-monthLiborof
0.0%andaweakeningintheSwissfranc,expectedinationattheendofthe
forecastperiodonlyincreasedto0.8%.Consequently,theinationforecast
showednoriskofinationinSwitzerlandintheforeseeablefuturedespitethestronggrowthinthemonetaryandcreditaggregates.Thisforecastpath
matched results obtained in the surveys on ination expectations, which
showedmildly negativeinationfor 2012anda slight riseinthe levelof
pricesin2013,whichwasconsistentwiththeSNBsdenitionofpricestabil-
ity.TheSNBwarnedthatifforeigndemandweretofalloffmoresharplythan
expected,downsideriskstopricestabilitywouldemerge.
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2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Inflation
December 2010 forecast:three-month Libor 0.25%
March 2011 forecast:three-month Libor 0.25%
Year-on-year changein national consumer
price index in percent
Inflation forecast of 17 March 2011
1
0.5
0
0.5
1
1.5
2
2.5
3
Inflation
March 2011 forecast:three-month Libor 0.25%
June 2011 forecast:three-month Libor 0.25%
Year-on-year changein national consumerprice index in percent
Inflation forecast of 16 June 2011
1
0.5
0
0.5
1
1.5
2
2.5
3
Inflation
June 2011 forecast:three-month Libor 0.25%
September 2011 forecast:three-month Libor 0.0%
Year-on-year changein national consumerprice index in percent
Inflation forecast of 15 September 2011
1
0.5
0
0.5
1
1.5
2
2.5
3
Inflation
September 2011 forecast:three-month Libor 0.0%
December 2011 forecast:three-month Libor 0.0%
Year-on-year changein national consumerprice index in percent
Inflation forecast of 15 December 2011
1
0.5
0
0.5
1
1.5
2
2.5
3
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2 Implementationofmonetarypolicy
2.1 Backgroundandoverview
ItisthetaskoftheSwissNationalBank(SNB)toprovidetheSwiss
francmoneymarketwithliquidity(art.5para.2(a)NationalBankAct(NBA)).
TheSNBimplementsitsmonetarypolicybymanagingliquidityonthemoney
marketandtherebyinuencingtheinterestratelevel.Thethree-monthSwiss
francLiborservesasitsreferenceinterestrate.Since6September2011,an
additional operational target in the form of a minimum exchange rate of
CHF1.20pereurohasalsoapplied.
TheframeworkwithinwhichtheSNBmayconducttransactionsinthe
nancialmarketisdenedinart.9NBA.Aslenderoflastresort,theNational
Bankalsoprovidesemergencyliquidityassistance(art.9para.1(e)NBA).
TheSNBmanagesthethree-monthLiborbymeansofliquidity-providing
andliquidity-absorbingsecuredmoneymarketoperations.Throughthevolume
andconditionsoftheseoperations,theSNBcaninuencethethree-month
Libor.Thechoiceofliquiditymanagementregimedependsonmonetarypolicy
requirementsandtheliquiditystructureinthebankingsystem.Ifthebanking
systemshowssignsofbeingundersuppliedwithliquidity,theSNBprovides
liquiditythroughshort-termmoneymarketoperations.If,however,thebanking
systemisoversuppliedwithliquidity,theSNBabsorbsliquidityviashort-term
moneymarketoperations.
Inorderforabanktomaintainitssolvency,itmusthavesufcient
liquidityatalltimes.Abanksmostliquidassetsaresightdepositsheldatthe
SNB,sincetheycanbeusedimmediatelyforpaymenttransactionsandare
deemedtobelegaltender.Inaddition,banksholdsightdepositsattheSNB
to satisfy minimum reserve requirements and as liquidity reserves. Sight
depositsattheNationalBankbearnointerest.
The individual nancial market participants adjust their liquidity
positionsonthemoneymarket.Bankswantingtoplacefundsonashort-term
basisprovideliquidityintheformofaloantootherbanksthatrequireshort-
termrenancing.Theseloanscanbegrantedonasecuredorunsecuredbasis.
Adisruptioninthemoneymarketsimpairstheliquidityadjustmentprocess
betweenthemarketparticipantsandcanthreatenthesolvencyofthebanks.
Aftermeasurestakentocounterthemassiveupwardpressureonthe
Swissfrancdidnothavethedesiredeffect,on6SeptembertheSNBseta
minimumexchangerateofCHF1.20pereuro.Indoingso,theNationalBank
madeitclearthatitwouldenforcethisminimumratewiththeutmostdeter-
minationandwasprepared,ifnecessary,tobuyforeigncurrencyinunlimited
quantities.
Background
Basicsofmoneymarketsteering
Signicanceofsightdepositsandmoneymarket
Introductionofminimumexchangerate
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2.2 Monetarypolicyinstruments
Withinitssetofmonetarypolicyinstruments,theSNBdistinguishes
betweenopenmarketoperationsandstandingfacilities.Inthecaseofopen
market operations, the SNB takes the initiative in the transaction. Where
standingfacilitiesareconcerned,whichincludetheliquidity-shortagenanc-
ingfacilityandtheintradayfacility,itmerelysetstheconditionsunderwhich
counterpartiescanobtainliquidity.
Regular open market operationsinclude repo transactionsand the
issuanceofSNBBills.Furthermonetarypolicyinstruments,suchasforeign
exchangeswapsandforeignexchangetransactions,areavailableifnecessary.
TheSNBconductsitsopenmarketoperationsintheformofauctionsor
bilateraltransactions.Transactionsonthemoneymarketareusuallyconcluded
viatheelectronictradingplatformofEurexZurichLtd.
Repoauctionsareconductedbyvolumetender.Inthistypeofauction,
eachcounterpartysubmitstotheSNBanofferfortheamountofliquidityit
iswillingtoprovideorrequestforagivenreporate.Ifthetotalamountof
allthe offers exceeds the SNBs predetermined allotmentvolume, the SNB
reducestheamountsofferedproportionately.
Asarule,SNBBillsareissuedintheformofavariableratetender
auctionwithallotmentaccordingtotheAmericanmethod.Inthistypeof
auction,theSNBscounterpartiessubmittheirofferscomprisingtheamount
ofliquiditytheyarewillingtoprovideandthepriceatwhichtheywilldo
so.Eachcounterpartymaysubmitasmanyoffersasitwishes,andmayalso
varytheinterestratefromoneoffertoanother.TheSNBobtainsliquidity
fromauctionparticipantsthathavebidbeloworatthehighestinterestrate
acceptedbytheSNBattheinterestratestatedintheindividualoffer.
Byplacingoracceptingoffersforrepotransactionsontheelectronic
tradingplatform, the SNBis able toinuence interestratesinthe money
marketatalltimes,andnotjustatthetimeoftheauctions.Suchbilateral
repotransactionscanbeusedforbothprovidingandabsorbingliquidity.
Openmarketoperationsandstandingfacilities
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Inprinciple,allbanksdomiciledinSwitzerlandandthePrincipalityof
Liechtensteinareadmittedascounterpartiesinmonetarypolicyoperations.
Otherdomesticnancialmarketparticipantssuchasinsurancecompanies,
as well as banks domiciled abroad, may be admitted to monetary policy
operationsprovidedthisisintheSNBsmonetarypolicyinterestandthesaid
institutionscontributetotheliquidityonthesecuredSwissfrancmoney
market.In2011,160domesticandforeignbanksaswellassixdomestic
insurancecompanieswereactiveasSNBcounterparties.
TheGuidelines of the Swiss National Bank (SNB) on Monetary PolicyInstruments (cf.www.snb.ch, The SNB, Legal basis, Guidelines and regulations)
containexplicitinformationwithregardtotheSNBsscopeofbusinessas
setoutinart.9NBAanddescribetheinstrumentsandproceduresusedby
theSNBfortheimplementationofitsmonetarypolicy.Theyalsodenethe
conditionsunderwhichthesetransactionsareconcludedandwhichsecurities
canbeusedascollateralformonetarypolicyoperations.
Openmarketoperations
Inthecaseofliquidity-providingrepotransactions,theSNBpurchases
securitiesfromabank(orothermarketparticipantadmittedasacounter-
party)andcreditstheassociatedsuminSwissfrancstothecounterpartys
sightdepositaccountwiththeSNB.Atthesametime,itisagreedthatthe
SNBwillresellsecuritiesofthesametypeandquantityatalaterdate.The
bankpaysinterest(repointerestrate)totheSNBforthetermoftherepo
agreement. In the case of liquidity-absorbing repo transactions, theSNB
sellssecuritiestoabankanddebitstheassociatedsumtothelatterssight
depositaccount.Atthesametime,itisagreedthattheSNBwillrepurchase
thesecuritiesfromthebankatalaterdate.TheNationalBankpaysinterest
(repointerestrate)tothebankforthetermoftherepoagreement.
Fromaneconomicperspective,arepoisasecuredloan,withtheSNB
actingascashproviderinthecaseofaliquidity-providingoperationandthe
commercialbankactingascashproviderinaliquidity-absorbingtransaction.
Thereporate,thevolumeandthetermoftheindividualoperationsdepend
onmonetarypolicyrequirements.Thetermsofrepotransactionsvaryfrom
oneday(overnight)toseveralmonths.
Eligiblecounterparties
Guidelinesonmonetarypolicyinstruments
Liquidity-providingandliquidity-absorbingrepotransactions
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TheissuanceofitsowndebtcerticatesinSwissfrancs(SNBBills)
allowstheNationalBanktoquicklyabsorblargeamountsofliquidity.TheSNB
canalsorepurchaseSNBBillsviathesecondarymarket,inordertoincrease
thesupplyofliquiditytothemarketwherenecessary.SNBBillsareeligibleas
collateralandcanthereforebeusedinSNBrepotransactions.BuyersofSNB
Billscansellthebillstoothernancialmarketparticipantswhetherbanks
ornon-banks just like othersecurities.SNBBills donotrepresentlegal
tender andcannot thereforebe used bybanks tosatisfyminimum reserve
requirements.
Standingfacilities
Tobridgeunexpectedliquiditybottlenecks,theSNBoffersaliquidity-
shortagenancingfacility.Inorderforabanktoobtainliquiditythroughthis
facility,theNationalBankmustgrantalimittobecoveredby110%collat-
eraleligibleforSNBreposatalltimes.Eachcounterpartyhastherightto
obtainliquidityuptothelimitgranteduntilthefollowingbankworkingday.
Theliquidity-shortagenancingfacilityisutilisedintheformofaspecial-
raterepotransaction.Thespecialratelies0.5percentagepointsabovethe
callmoneyrate.ThebasisistheSARON(SwissAverageRateOvernight)ofthe
currentbankworkingday.Thespecialrateisvaliduntil12.00noonofthe
followingbankworkingdayandisatleast0.5percentagepoints.
Attherequestofnancialmarketparticipants,in2011thelimitsfor
theliquidity-shortagenancingfacilitywerereducedbyatotalofCHF4.6
billiontoCHF32.9billion.Bytheendoftheyear,91nancialmarketpartici-
pantshadbeengrantedalimit(previousyear:85).
Duringtheday,theSNBprovidesitscounterpartieswithinterest-free
liquidity(intradayliquidity)throughrepotransactions,soastofacilitatethe
settlement of payment transactions via Swiss Interbank Clearing and the
settlementofforeignexchangetransactionsviaContinuousLinkedSettlement,
themultilateralpaymentsystem.Thecashamountsdrawnmustberepaidby
theendofthesamebankworkingday,atthelatest.Intradayliquiditycannot
beusedtocomplywithminimumreser verequirementsorliquidityrequirements
underbankinglaw.
IssuanceandrepurchaseofSNBBills
Liquidity-shortagenancingfacility
Intradayfacility
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Othermonetarypolicyinstruments
Inaccordancewithart.9para.1NBA,theSNBhasothermonetary
policyinstrumentsatitsdisposal.Theseinclude,inparticular,spotandforward
foreignexchangetransactions,foreignexchangeswaps,thepurchaseandsale
ofsecuritiesdenominatedinSwissfrancsandderivativesonreceivables.
Inaforeignexchangeswap,thepurchase(sale)offoreigncurrencyat
thecurrentspotrateandthesale(purchase)oftheforeigncurrencyatalater
datearesimultaneouslyagreed.Foreignexchangeswaptransactionscanbeconductedviaauction(volumetender)oronabilateralbasiswithawiderange
ofcounterparties.
Beforetheintroductionofrepotransactionsin1998,foreignexchange
swapsweretheSNBsmostimportantmonetarypolicyinstrumentforsupplying
themoneymarketwithliquidity.ToacceleratetheincreaseinSwissfranc
liquidityinAugust2011,theSNBdecidedon10Augusttoalsoconductforeign
exchangeswaptransactions.
Inordertofullitsmonetarypolicymandate,theNationalBank
maypurchaseandsellforeigncurrencyagainstSwissfrancsonthenancial
markets.
2.3 CollateraleligibleforSNBrepos
Inaccordancewithart.9NBA,theSNBmayenterintocredittransac-
tionswithbanksandothernancialmarketpart icipants,onconditionthat
sufcientcollateralisprovidedfortheloans.Insodoing,theSNBprotects
itselfagainstlossesandensuresequaltreatmentofitscounterparties.Art.3
oftheGuidelines of the Swiss National Bank (SNB) on Monetary Policy Instru-
mentsoutlinesthetypesofsecuritieseligibleascollateralforSNBtransac-
tions.OnlysecuritieswhichmeetthecriterialistedintheInstruction Sheeton Collateral Eligible for SNB Repos (cf. www.snb.ch,The SNB, Legal basis,
Guidelines and regulations),andwhichappearinthelistofcollateraleligible
forSNBrepos,areadmittedforrepotransactions.
Foreignexchangeswaps
Purchaseandsaleofforeigncurrency
Legalbasis
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TheSNBpursuesanopenaccesspolicyandallowsbanksdomiciled
abroadtoparticipateinitsmonetarypolicyoperations,too.Ittherefore
acceptsascollateralnotjustSwissfrancsecurities,butalsosecuritiesdenom-
inatedinforeigncurrencies.Oneconditionisthattheissuerofsecuritiesis
domiciledinSwitzerlandoramemberstateoftheEuropeanUnionorthe
EuropeanEconomicArea.Theminimumrequirementswithregardtocollateral
inforeigncurrenciesarehigherthanforthosedenominatedinSwissfrancs.
In2011,95%ofthesecuritieseligibleascollateralforSNBoperationswere
denominatedinforeigncurrenci