SNB 3Q.en

Swiss National BankQuarterly Bulletin

September 3/2011 Volume 29

706096_QH_3_11_IN_e.qxp:705638_QH_1_11_IN_d 22.9.2011 14:17 Uhr Seite 1

SNB 2 Quarterly Bulletin 3/2011 SN


Contents

14 Monetary policy report

32 Business cycle trends

38 Exchange rate survey: Effects of Swiss franc appreciation and company reactions

44 SNB Policy Paper: Swiss franc bond market – smooth sailing through the financial crisis

52 Chronicle of monetary events

SNB 3 Quarterly Bulletin 3/2011


SNSNB 4 Quarterly Bulletin 3/2011SNB 4 Quarterly Bulletin 3/2011

Monetary policy report

Report to the attention of the Governing Board of the Swiss National Bankfor its quarterly assessment of September 2011.

This report is based primarily on the data and information available as at 15 September 2011.



Monetary policy reportContents

6 About this report

7 1 Monetary policy decision of 15 September 2011

8 Monetary policy strategy at the SNB

9 2 Global economic environment9 2.1 International financial and commodity markets

10 2.2 United States11 2.3 Euro area12 2.4 Japan13 2.5 Emerging economies in Asia

14 3 Economic developments in Switzerland14 3.1 Aggregate demand and output17 3.2 Labour market18 3.3 Capacity utilisation19 3.4 Outlook for the real economy

20 4 Prices and inflation expectations20 4.1 Consumer prices22 4.2 Producer and import prices22 4.3 Real estate prices23 4.4 Inflation expectations

24 5 Monetary developments24 5.1 Summary of monetary policy since the last assessment25 5.2 Money and capital market interest rates27 5.3 Exchange rates28 5.4 Stock markets29 5.5 Monetary and credit aggregates


SNSNB 6 Quarterly Bulletin 3/2011

About this report

The Swiss National Bank (SNB) has a statutory mandate to pursue a monetary policy serving the interests of the country as a whole. It ensuresprice stability while taking due account of economic developments.

It is a particular concern of the SNB that its monetary policy be understood by a wider public. Moreover, it is obliged by law to inform regularly of its policy and to make its intentions known. This monetary policy report performs both of these tasks. It describes economic and monetary developments in Switzerland and explains the inflation forecast.It shows how the SNB views the economic situation and the implications for monetary policy it draws from this assessment.

Sections 2–5 of the present report were drawn up for the GoverningBoard’s assessment of September 2011. Section 1 (’Monetary policy decision of 15 September 2011’) is an excerpt from the press release publishedfollowing the monetary policy assessment of 15 September 2011.

Unless otherwise stated, all rates of change from the previous periodare based on seasonally adjusted data and are annualised.



1 Monetary policy decision of 15 September 2011The Swiss National Bank (SNB) will enforce

the minimum exchange rate of CHF 1.20 per euroset on 6 September with the utmost determination.It is prepared to buy foreign currency in unlimitedquantities. It continues to aim for a three-monthLibor at zero and will maintain total sight depositsat the SNB at significantly above CHF 200 billion.

With these measures, the SNB is taking astand against the acute threat to the Swiss econ-omy and the risk of deflationary development thatspring from massive overvaluation of the Swissfranc. Even at a rate of CHF 1.20, the Swiss franc isstill high and should continue to weaken over time.If the economic outlook and deflation risks sorequire, the SNB will take further measures.

The growth of the global economy has slowedsubstantially in the course of the second quarter.The outlook for the advanced economies, in par-ticular, has worsened considerably. In Switzerland,economic activity is suffering from both the strongSwiss franc and the softening in internationaldemand. The SNB expects growth to come to a halt

in the second half of the year. For 2011 as a whole,GDP growth can be expected at 1.5–2.0%. This isonly because of the favourable economic develop-ment in the first half of the year. Without the sta-bilising effect of the minimum exchange rate, therewould be a substantial threat of recession.

Uncertainty about the future outlook for theglobal economy remains exceptionally high and therisks for the global financial system have increasedsubstantially. The deterioration in the outlook for growth and fiscal problems in the advancedeconomies are both adversely impacting confidencein financial markets worldwide.

The SNB’s conditional inflation forecast hasshifted substantially downwards as a result of themassive appreciation in the Swiss franc and thedeterioration in the outlook for the global econ-omy. For 2011, the forecast shows an inflation rateof 0.4%, for 2012 a rate of –0.3% and for 2013 arate of 0.5%. This forecast is based on the assump-tion of a three-month Libor of 0.0% and a furtherweakening in the Swiss franc. In the foreseeablefuture, there is no risk of inflation in Switzerland.There are, however, downside risks for price stabilityshould the Swiss franc not weaken further.

Conditional inflation forecast of June 2011 and of September 2011Percentage change in national consumer price index from previous year

Inflation Forecast June 2011 (with Libor at 0.25%) Forecast September 2011 (with Libor at 0.00%)%

–0.5

0

0.5

1

1.5

2

2.5

3

2008 2009 2010 2011 2012 2013 2014Source: SNB

Chart 1.1



The SNB has a statutory mandate to ensureprice stability while taking due account of eco-nomic developments.

The SNB has specified the way in which itexercises this mandate in a three-part monetarypolicy strategy. First, it regards prices as stablewhen the national consumer price index (CPI) risesby less than 2% per annum. This allows it to takeaccount of the fact that the CPI slightly overstatesactual inflation. At the same time, it allows infla-tion to fluctuate somewhat with the economiccycle. Second, the SNB summarises its assessmentof the situation and of the need for monetary pol-

icy action in a quarterly inflation forecast. Thisforecast, which is based on the assumption of aconstant short-term interest rate, shows how theSNB expects the CPI to move over the next threeyears. Third, the SNB sets its operational goal inthe form of a target range for the three-monthSwiss franc Libor. In addition, a minimum exchangerate against the euro is currently in place.

Monetary policy strategy at the SNB

Observed inflation in September 2011 Table 1.1

2008 2009 2010 2011 2008 2009 2010

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Inflation 2.5 2.7 3.0 1.6 0.0 –0.7 –1.0 –0.2 1.1 1.0 0.3 0.3 0.6 0.4 2.4 –0.5 0.7

Conditional inflation forecast of June 2011 with Libor at 0.25% and of September 2011with Libor at 0.00%

2011 2012 2013 2014 2011 2012 2013

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Forecast June 2011,Libor at 0.25% 0.5 1.4 1.3 1.0 0.9 1.0 1.2 1.4 1.6 1.8 2.2 2.6 0.9 1.0 1.7

Forecast September 2011,Libor at 0.00% 0.4 0.1 –0.4 –0.5 –0.2 0.0 0.2 0.4 0.5 0.7 0.9 1.0 0.4 –0.3 0.5

Source: SNB



2 Global economic environment

The global economic recovery has lost morestrength than expected. The delayed impact of thestrong increase in energy prices in the first quarterheld back demand worldwide. In addition, themajor catastrophe in Japan led to interruptions inproduction. In the US and in the euro area, GDPgrowth in the second quarter was disappointinglyweak, and in Japan, GDP again declined.

Over the past few months, energy prices havestabilised, and the delivery chain problems thatarose because of the earthquake in Japan haveabated. This should provide some support to thegrowth of the world economy in the second half of the year. Overall, however, recovery in theadvanced economies is likely to remain weak. Risingrisk premia for European government bonds and the decline in the international stock markets aredampening the confidence of companies and con -sumers. Moreover, government budget consolidationmeasures in the advanced economies are holdingback economic recovery. By contrast, the pace ofexpansion is likely to remain robust in the emergingeconomies.

The SNB has made a substantial downwardadjustment to its global growth forecasts. Theuncertainty about the future outlook for the globaleconomy remains exceptionally high and the down-side risks continue to dominate.

2.1 International financial and commodity marketsMovements on the international financial mar-

kets were dominated by investors’ concern aboutfiscal sustainability in Europe and the US as well asdisappointing economic indicators. The compro m-ise in the US budget dispute, the prospect of afurther aid pack age for Greece and additional fiscalsavings meas ures in Italy, Spain and France wereunable to curb the uncertainty.

Risk premia for bonds with low credit ratingsincreased. The global equity markets continued tolose ground significantly and the volatility indicesshowed a distinct increase in market uncertainty(cf. chart 2.3). There was once again considerabletension on the European interbank market. On thecurrency markets, the yen in particular continuedto appreciate while the euro and US dollar remainedstable on a trade-weighted basis (cf. chart 2.4).Commodity prices receded slightly owing to anxietyover the economic developments (cf. chart 2.5).

For its forecasts, the SNB assumes an oil priceof USD 115 per barrel of Brent crude and anexchange rate of USD 1.42 per euro.

Global exportsPeriod average = 100, monthly figures

World Advanced economies Emerging economiesIndex

85

90

95

100

105

110

115

120

2007 2008 2009 2010 2011Sources: CPB, Thomson Financial Datastream

Chart 2.2Global industrial production

Period average = 100, monthly figuresWorld Advanced economies Emerging economies

Index

90

95

100

105

110

115

120

2007 2008 2009 2010 2011Sources: Netherlands Bureau for Economic Policy Analysis (CPB),Thomson Financial Datastream

Chart 2.1



2.2 United States

The economic recovery in the US lost momen -tum unexpectedly sharply in the first half of theyear. GDP virtually stagnated in the first quarterand grew by only 1.0% in the second, thus remain -ing significantly below its potential growth level.Weak growth in incomes, supply problems resultingfrom the disaster in Japan, higher commodityprices and government savings measures held backdomestic demand. Moreover, revised GDP data showthat the economic recovery since 2009 has beenconsiderably weaker than had previously beenassumed. GDP is still below the pre-crisis level.

Although commodity prices have stabilised inrecent months and supply problems have beenresolved, the economic outlook for the US has de-teriorated. Downtrends in share prices and delays inachieving a compromise in the budget disputeresulted in a loss of confidence in the economy. Thesituation on the real estate market remains very dif-ficult. Furthermore, low growth in employment isdampening household consumption. The upcomingfiscal consolidation measures are also hamperingthe growth outlook. Against this background, theSNB has made a considerable downward adjustmentto its growth forecast for the US. It now anticipatesGDP growth of 1.6% in 2011 and 1.9% in 2012.

Consumer price inflation is still considerable.The annual inflation rate rose to 3.8% in August.Energy prices declined. The core inflation rate continued to rise, reaching 2.0%. Persistently highunemployment should, however, keep wage risesand core inflation low in the medium term.

The US Federal Reserve is continuing to supportthe economy through an expansionary monetary pol -icy. It has left the target range for the federal fundsrate unchanged at 0.0–0.25% and reinvested secur-i ties that fall due. The second major securities pro-gramme (QE2), which provided for the purchase ofUS Treasury bonds to a total value of USD 600 billion,ended in June as scheduled. Furthermore, the Feder -al Reserve announced that, given the present eco -nomic outlook, it would be holding the fed fundsrate unchanged at the present exceptionally lowlevel until at least mid-2013.

Stock marketsBeginning of period = 100 (lhs), daily figures

Developed markets (MSCI) Emerging marketsImplied volatility (VIX) (rhs)

Index Index

50

75

100

125

150

2007 2008 2009 2010 2011

20

40

60

80

100

Sources: Reuters, Thomson Financial Datastream

Chart 2.3

Commodity pricesDaily figures

Commodities excl. energy Oil (Brent, spot) (rhs)Index USD/barrel

70

80

90

100

110

120

130

2007 2008 2009 2010 2011

40

60

80

100

120

140

160


Chart 2.5

Exchange ratesBeginning of period = 100 (lhs), daily figures

USD trade-weighted EUR trade-weighted USD in EUR (rhs)Index

90

95

100

105

110

115

2007 2008 2009 2010 2011

1.2

1.3

1.4

1.5

1.6

1.7


Chart 2.4



2.3 Euro area

Following robust growth in the first quarter,economic activity in the euro area weakened per -ceptibly. GDP grew by 0.6% in the second quarter,but the core euro area countries in particular lostconsiderable momentum. Germany only registered amarginal increase in economic output, while inFrance it stagnated. There was a broadly-baseddecline in GDP growth on the demand side. Domes -tic demand was held back by increasing uncertaintytriggered by the lingering sovereign debt crisis and,in France, the temporary impact of the expiry ofpremiums for scrapping old cars.

The economic outlook for the euro area hasdeteriorated markedly. Surveys on order intake andexport expectations indicate a slowdown in indus -trial activity. At the same time, demand is beingdampened by the fiscal savings measures announcedby some member states. Household and businesssentiment became distinctly gloomier in August (cf. charts 2.7 and 2.8). The SNB has reduced itsgrowth forecast for the euro area. It now expectsGDP growth of 1.6% in 2011 and 1.1% in 2012.

Inflation in the euro area is gradually declin -ing. Consumer price inflation dropped to 2.5% inAugust, while the core inflation rate fell to 1.2%.Price cuts for clothing and shoes curbed inflation,and surveys of households and businesses also indi -cate lower inflation expectations.

The European Central Bank (ECB) increased itsmain refinancing rate by 25 basis points in July,having increased it in April for the first time sincethe end of the recession. However, tension on thegovernment bond markets increased significantly inAugust, prompting the ECB to reactivate its secur -ities purchase programme. Since then, markets havebeen expecting a reduction in interest rates in thecoming few months.

Consumer confidence indexApril 2007 = 100, monthly figures

US Japan Euro area Switzerland (quarterly fig.)Index

70

80

90

100

110

2007 2008 2009 2010 2011Sources: SECO, Thomson Financial Datastream

Chart 2.8

Real GDPYear-on-year change

US Japan Euro area China Switzerland%

–5

0

5

10

15

2007 2008 2009 2010 2011Sources: State Secretariat for Economic Affairs (SECO),Thomson Financial Datastream

Chart 2.6

Purchasing managers’ indices (manufacturing)Monthly figures

US Japan Euro area China Switzerland

30

35

40

45

50

55

60

65

70

2007 2008 2009 2010 2011Source: Thomson Financial Datastream; copyright and databaserights: Markit Economics Ltd 2009; all rights reserved

Chart 2.7



2.4 Japan

The Japanese economy went into recession inMarch following the catastrophic earthquake. Thisinterrupted the gradual recovery that had started inearly 2009. The decline in GDP registered in thefirst half of the year reflects bottlenecks caused bywrecked production facilities and power shortages,as well as a decrease in demand due to widespreaduncertainty. Measured by the reduction in GDP, thedisaster is one of the most expensive to have hitthe world since the Second World War.

The economy should recover in the secondhalf of the year, making up for the previous reduc -tion in GDP. The upturn got under way during thesecond quarter and is broadly based. Industrial out -put and exports of goods have almost entirelyrecovered from the downturn, and there are signs ofrising consumer demand for energy-saving domesticappliances. At the end of July, the Japanese gov -ernment decided on a second supplementary budgettotalling JPY 2,000 billion (0.4% of GDP) to sup -port the regions affected by the earthquake. A further supplementary budget to fund reconstruc -tion work is planned. The medium-term growthprospects nevertheless remain subdued as a gradualrelocation of production to other countries is hold-ing back potential growth. The SNB now expectsJapan’s GDP to contract by 0.4% in 2011, followedby strong growth of 2.6% in 2012.

Japanese consumer prices are still declining.Furthermore, the recent adjustment of the basket of consumer goods has resulted in a considerabledownward revision of inflation rates for past months.Since utilisation of production capacity is still wellbelow normal as the recovery is only making slowprogress, price pressure remains very muted. More-over, the strength of the yen is reducing importedinflation.

The Ministry of Finance intervened on the cur -rency market in August to check the appreciation of the yen. Moreover, a special credit facility pro -gramme equivalent to around CHF 80 billion hasbeen designed to support investment by Japanesecompanies abroad. In addi tion, the Bank of Japanincreased the budget ear marked for the acquisitionof assets by an amount equivalent to around CHF 85billion. It left the call money rate unchanged at0.0–0.1%.

Core inflation ratesYear-on-year change


–1

0

1

2

3

2007 2008 2009 2010 2011Sources: SFSO, Thomson Financial Datastream

Chart 2.11

Unemployment ratesMonthly figures

US Japan Euro area China (quarterly fig.) Switzerland%

3

4

5

6

7

8

9

10

11

2007 2008 2009 2010 2011Sources: SECO, Thomson Financial Datastream

Chart 2.9

Consumer pricesYear-on-year change


–2

0

2

4

6

8

10

2007 2008 2009 2010 2011Sources: Swiss Federal Statistical Office (SFSO),Thomson Financial Datastream

Chart 2.10



2.5 Emerging economies in Asia

In the emerging economies of Asia, the earth-quake in Japan and lower demand from the majoradvanced economies resulted in a reduction in economic momentum. In the newly industrialisedeconomies (NIEs) – South Korea, Taiwan, HongKong and Singapore – growth weakened in the sec -ond quarter, although this came in the wake ofstrong growth in the previous quarter. The reduc -tion was mainly due to the export industry. Chinesegrowth, too, slowed down somewhat. Domesticdemand in China, however, proved resilient againstthe background of tighter economic policy.

The regional economy should regain strengthin the second half of the year. Rising householdincomes and state incentives will continue to sup-port private consumption. Although the SNB hasreduced its growth forecast for China slightly, itstill expects sound GDP growth of around 9% in

International long-term interest rates10-year government instruments, daily figures

US Japan Germany South Korea Switzerland%

1

2

3

4

5

6

7

2007 2008 2009 2010 2011Sources: SNB, Thomson Financial Datastream

Chart 2.13Official interest rates

US Japan Euro area South Korea Switzerland%

0

1

2

3

4

5

6

2007 2008 2009 2010 2011Sources: SNB, Thomson Financial Datastream

Chart 2.12

both 2011 and 2012. In the NIEs, both productionand export activity have picked up again since mid-year. For 2011, the SNB is still forecasting thatthese four economies will report GDP growth in linewith the average for the past ten years (around4.3%). By contrast, its forecast for 2012 is slightlylower, reflecting the expected weakening of foreigndemand.

Inflation remains high in the region. In China,consumer prices rose by 6.2% year-on-year inAugust. However the rise, which was partly due tofood prices, should have peaked. So far there is nosign of increased wage pressure. In South Korea,inflation is above the central bank’s target range.

The People’s Bank of China tightened minimum reserve requirements for banks again andallowed the renminbi to appreciate slightly intrade-weighted terms. In some Asian economies,the rapid rise in real estate prices remains the mainfocus of attention in monetary policy.



3 Economic developments in SwitzerlandIn the course of the global economic slow -

down, growth in Switzerland also weakened in thesecond quarter. According to the initial estimate,real GDP rose by an annualised rate of 1.4%, follow-ing growth rates of around 2.5% in the previousfour quarters. Goods exports only increased by asmall amount, while exports of services declinedconsiderably. Domestic final demand stagnated.

For the time being, technical capacity utilisa -tion remains high. In manufacturing, it remainsslightly above the long-term average. In the con -struction industry, it again attained a new recordhigh. The recovery in the labour market continuedin the second quarter. In the course of the thirdquarter, however, it came to a standstill. Unemploy -ment only receded slightly in August.

The impact of the appreciation of the Swissfranc is not yet reflected in the figures on produc -tion and capacity utilisation for the first half of theyear. However, the slowdown in the internationaleconomy and the exceptionally strong and rapidappreciation of the Swiss franc in the past fewmonths have resulted in a difficult situation for theSwiss economy. Surveys show that many companiesthat are exposed to international competition arenow suffering from a sharp drop in margins. Bothdemand for labour and investment decisions arebeing affected by the uncertainty with regard tofuture developments. The domestic economy is also

Contributions to growth in demandChange from previous period

Domestic final demand Net exports Inventories GDP%

–10

–5

0

5

10

15

2007 2008 2009 2010 2011Source: SECO

Chart 3.2Contributions to growth, by sector

Change from previous periodManufacturing Banking Services TradePublic admin. & health Transport Other GDP

%

–6

–4

–2

0

2

4

6

2007 2008 2009 2010 2011Source: SECO

Chart 3.1

likely to be affected to some extent by a slowdownin labour market development. The SNB expectsthat growth will come to a halt in the second halfof the year. For 2011 as a whole, GDP growth can beexpected at 1.5–2.0%. This is only because of thefavourable economic development in the first halfof the year.

3.1 Aggregate demand and output

Growth in 2010 at 2.7% according to SFSO The initial estimate of the national accounts

for 2010 published by the Swiss Federal StatisticalOffice (SFSO) confirms the rapid recovery of theSwiss economy last year which was already appar -ent in the original quarterly figures published bythe State Secretariat for Economic Affairs (SECO).At 2.7%, the GDP growth estimate by the SFSO isonly marginally higher than SECO’s original figure(2.6%). There are, however, considerable differ -ences from one component to another. For example,value added in manufacturing recovered morequickly from the sharp fall in 2009 than had origi -nally been anticipated. Trade and the constructionindustry also grew at a more vigorous pace in 2010.By contrast, after the steep decline triggered by the financial crisis, the banking industry grew at a slower pace than originally expected. On thedemand side, the rise in equipment investmentsince 2009 is particularly striking.



Signs of a decline in value addedAccording to provisional estimates by SECO,

GDP growth in the second quarter weakened to1.4%, the lowest quarterly growth rate since theend of the recession. The year-on-year changeamounted to 2.3%. The slowdown in value addedwas particularly noticeable in the financial industry(banks and insurance companies), while valueadded stagnated in manufacturing. However, publicadministration and trade again contributed moresubstantially to growth than they had in the previ -ous quarters (cf. chart 31).

Slower momentum in foreign tradeForeign trade slackened in the second quarter

(cf. chart 3.2). With the global slowdown in eco -nomic growth and the renewed appreciation of theSwiss franc, total exports declined (cf. chart 3.3).With imports contracting as well, (cf. chart 3.4),the foreign trade contribution was only slightlynegative (–0.1 percentage points).

Growth in goods exports slowed considerably.Exports of machinery and precision instruments, inparticular, began to suffer, but those of many otherimportant industries were weaker as well. Exportsof watches were the only area that continued toexpand vigorously. This was due to demand fromAsia. Exports to emerging Asian economies, however, lost momentum overall, as did exports to theUS. In fact, exports to Europe contracted.

Exports of services fell significantly in thesecond quarter. In addition to currency-relatedlosses from cross-border banking operations, thisdecline is particularly attributable to lower net rev -enues from merchanting. Despite the strong Swissfranc, tourism exports remained at the same levelas in the previous quarter. This was because thestronger influx of visitors from Asia compensatedfor the decline in the numbers of Europeans travel-ling to Switzerland.

With regard to imports, consumer spending bySwiss residents abroad recorded a slight increaseowing to the sharp rise in purchasing power. Bycontrast, other import fell considerably.

Domestic final demand weakDomestic final demand stagnated in the sec -

ond quarter (cf. chart 3.5 and table 3.1). At 1.7%,domestic demand expanded reasonably strongly.However, this was mainly attributable to a strongincrease in inventories.

Contributions to export growthChange from previous period

Goods (excluding valuables) Services Total%

–20

–10

0

10

20

30

2007 2008 2009 2010 2011Source: SECO

Chart 3.3

Contributions to import growthChange from previous period

Goods (excluding valuables) Services Total%

–15

–10

–5

0

5

10

15

20

25

2007 2008 2009 2010 2011Source: SECO

Chart 3.4

Domestic final demand, growth contributionsChange from previous period

Priv. consumption Gov. consumption Equip. inv.Constr. investm. Domestic final demand

%

–4

–2

0

2

4

6

2007 2008 2009 2010 2011Source: SECO

Chart 3.5



Equipment investment declined in the secondquarter (–5.8%), although there was substantialvariation from one industry to another. Investmentin vehicles and telecommunications declined con -siderably even though import prices were trendingweaker, while investment in machine and metalproducts, by contrast, which account for aroundone-third of equipment investment, increased.Moreover, the positive trend of the past few quar -ters continued for investment in software. Overall,companies continue to benefit from favourablefinancing conditions. However, the willingness toinvest remains on the whole subdued because ofthe increasingly pessimistic sales outlook.

In the second quarter, construction invest-ment declined by 9.7%, following a sharp rise inthe first quarter, when temperatures were mild. Thelevel of construction investment is still high by his -toric standards. Residential construction, in particular, which is being encouraged by low interest

rates and immigration, remains strong. However,civil engineering also continues to be supported byrobust demand for infrastructure projects.

In the most recent period, private consump -tion has only picked up slightly, increasing 0.9% inthe second quarter. Consumer expenditure was sup -ported by a continuation of the strong rate of popu -lation growth. Broken down by components, theconsumption of services, in particular, increased,while expenditure on food decreased considerably.The latter could be attributable in part to theincrease in cross-border shopping. Since goodsimported by private individuals are not fully record -ed, consumer expenditure, as officially stated, islikely to underestimate actual expenditure. How -ever, in view of the most recent decline in consumerconfidence, a fairly subdued advance in consump-tion may be expected, irrespective of this one-offstatistical effect.

Real GDP and components Table 3.1Growth rates on previous period, annualised

2007 2008 2009 2010 2009 2010 2011

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Private consumption 2.3 1.4 1.4 1.7 1.7 1.8 2.7 0.0 2.3 1.7 0.5 0.9Government consumption 0.3 2.7 3.3 0.8 3.6 2.3 –1.5 –1.2 2.0 1.2 –4.7 11.5Investment in fixed assets 5.1 0.5 –4.9 7.5 13.9 7.3 4.0 7.2 6.4 15.0 4.4 –7.6

Construction –2.3 0.0 3.0 3.5 7.6 –2.7 –4.2 13.6 3.8 3.2 8.8 –9.7Equipment 11.1 0.8 –10.8 10.9 19.8 16.6 11.3 2.3 8.5 25.4 1.2 –5.8

Domestic final demand 2.7 1.3 0.1 2.9 4.6 3.1 2.5 1.5 3.2 4.7 0.7 0.1Domestic demand 1.4 0.5 0.6 1.5 –3.9 0.9 6.6 –2.5 12.2 –5.0 –1.7 1.7Total exports 9.6 3.1 –8.6 8.4 26.0 1.6 9.4 18.7 –11.3 15.5 14.1 –5.1

Goods1 8.3 2.1 –11.1 9.4 16.0 9.5 10.8 9.2 1.3 12.9 10.0 3.5Services 12.8 4.3 –1.7 5.4 45.3 –6.4 –12.6 54.7 –25.4 24.4 15.3 –22.6

Aggregate demand 4.4 1.5 –3.0 4.0 6.2 1.2 7.6 5.2 2.5 2.3 4.0 –1.0Total imports 6.1 0.3 –5.5 7.3 13.1 –0.8 17.1 11.9 2.0 2.0 7.5 –6.6

Goods1 6.7 –1.0 –8.5 10.8 16.6 2.1 20.9 23.1 –0.6 5.1 6.7 –7.3Services 11.2 4.1 7.4 –1.9 –2.8 1.8 –14.5 8.6 2.5 0.5 0.6 –5.3

GDP 3.6 2.1 –1.9 2.7 3.3 2.0 4.0 2.4 2.7 2.5 2.6 1.4

1 Goods: excluding valuables (precious metals, precious stones and gems as well as works of art and antiques)Source: SECO



3.2 Labour market

Employment still increasing Employment is likely to have increased further

in Switzerland in the second quarter. Full-timeemployment was up by 1.5% (cf. chart 3.6). Due toan adjustment to the employment statistics, how -ever, no reliable data on movements in part-timeemployment or full-time equivalents are currentlyavailable. According to SNB estimates, the volumeof full-time equivalents is likely to have expandedfurther in the second quarter.

In most services industries, full-time employ -ment rose, exceptions being accommodation, archi -tectural practices, engineering consultants andfinancial services, all of which recorded a decline.Full-time employment increased further in manu -facturing; in construction, however, it decreasedslightly.

Stagnating unemploymentSeasonally adjusted unemployment decreased

only marginally between May and August. However,the rate of unemployment remained unchanged at3.0% (cf. chart 3.7). During the same period, theproportion of job-seekers fell from 4.5% to 4.4%.

Since data on unemployment are availablesooner than employment figures, they are alreadyreflecting a weakening in the demand for labour.

In the first half of the year, short-time workagain decreased slightly (cf. chart 3.8), and in June3,400 individuals were still affected by short-timework, compared with the maximum figure of 92,300recorded in the recession.

Short-time working

Workers affected Companies affected (rhs)In thousands In thousands

20

40

60

80

100

02 03 04 05 06 07 08 09 10 11

1

2

3

4

5

Source: SECO

Chart 3.8

Full-time employmentChange from previous period

Manufacturing Construction Services%

–6

–4

–2

0

2

4

6

2007 2008 2009 2010 2011Source: SFSO, seasonal adjustment: SNB

Chart 3.6

Unemployment and job seeker ratesMonthly figures

Unemployed, seasonally adjusted UnemployedJob seekers, seasonally adjusted Job seekers

%

2.5

3

3.5

4

4.5

5

5.5

6

2007 2008 2009 2010 2011Unemployed and job seekers registered with the regional employ-ment offices, as a percentage of the labour force according to the2000 census (labour force: 3,946,988 persons).Source: SECO

Chart 3.7



3.3 Capacity utilisation

Capacity utilisation stagnatingTechnical capacity utilisation in manufactur-

ing stagnated in the second quarter. According tothe survey conducted by the Swiss Economic Insti-tute (KOF) (cf. chart 3.9), it remained above thelong-term average (cf. chart 3.9). In addition, thenumber of businesses reporting a shortage oflabour and technical capacity is at an average level.

In the construction industry, utilisation re -mains exceptionally high. In the second quarter,the level of machine utilisation reached a new peakof 79.2% (cf. chart 3.10). Accordingly, many of thecompanies interviewed by the KOF are complainingof bottlenecks in machine and equipment capacity,as well as labour shortages.

Among services companies, the survey con -tinues to show that capacity utilisation is at anaverage level. Employment is currently described by the businesses surveyed as predominantly satis-factory.

Output gap almost closedThe output gap, which is defined as the per -

centage deviation of GDP from estimated aggregatepotential output, shows how well the productionfactors in an economy are being utilised.

Estimates of potential output using differentmethods indicate that, in the second quarter, GDPwas at about its potential level (cf. chart 3.11).Depending on the method used, the output gap was–0.5% (production function), 0.3% (Hodrick-Prescott filter) or 0.4% (multivariate filter).

The deviation between the estimates reflectsdifferent ways of calculating production potential.The production function approach considers thelabour market situation and the stock of capital inthe economy. Since potential labour trends havebeen particularly robust in recent years – to someextent because of immigration – the estimate ofproduction potential based on this method is high -er than production potential estimated on the basisof statistical filters. Accordingly, the output gapestimated using the production function approachis lower.

Output gap

Production function HP filter MV filter%

–2

–1

0

1

2

3

4

02 03 04 05 06 07 08 09 10 11Source: SNB

Chart 3.11

Capacity utilisation in manufacturing

Capacity utilisation Long-term average%

78

80

82

84

86

88

90

02 03 04 05 06 07 08 09 10 11Source: KOF Swiss Economic Institute

Chart 3.9

Capacity utilisation in construction

Capacity utilisation Long-term average%

70

72

74

76

78

80

02 03 04 05 06 07 08 09 10 11Source: KOF Swiss Economic Institute

Chart 3.10



Employment leading indicatorsMonthly figures (PMI), quarterly figures (KOF, SFSO)

PMI KOF SFSOIndex

–2

–1.5

–1

–0.5

0

0.5

1

1.5

2

2007 2008 2009 2010 2011Sources: Credit Suisse, KOF Swiss Economic Institute, SFSO

Chart 3.14

Leading indicatorsMonthly figures

PMI KOF barometer (rhs)Index Index

30

35

40

45

50

55

60

65

70

2007 2008 2009 2010 2011

–1.5

–1

–0.5

0

0.5

1

1.5

2

2.5

Sources: Credit Suisse, KOF Swiss Economic Institute

Chart 3.12

Expected new orders

All industries Chemicals Machinery Watchm. MetalsBalance

–40

–20

0

20

40

60

2007 2008 2009 2010 2011Source: KOF Swiss Economic Institute

Chart 3.13

3.4 Outlook for the real economy

The outlook for the Swiss economy has cloud-ed over. With the further strengthening in the Swissfranc during the past few months, surveys indicatethat the margins of many Swiss companies haveagain deteriorated markedly. A few months ago, thenegative impact on companies’ earnings situationwas still mitigated by the high order level; in thenext few months, however, the limited momentumin the economies of Switzerland’s main tradingpartners is likely to exacerbate the situation.

In the last few months, the leading indicatorshave noticeably weakened, and a significant slow -down is evident in goods exports. In addition, thepositive momentum on the labour market has slack -ened over the past few months; in the meantimesome indicators suggest a slowing in the demandfor labour.

Although domestic factors such as the lowinterest rate and the healthy development of realincomes are still having a favourable impact, theweakening of foreign demand and the deteriorationin the earnings of many companies are likely tohave a negative effect on investment, in particular.This, in its turn, is likely to have a negative impacton both employment and private consumer expen -diture. The SNB expects growth to come to a halt inthe second half of the year. For 2011, GDP growthof 1.5–2.0% can be expected. This is only becauseof the favourable economic development in the firsthalf of the year.



4 Prices and inflation expectations

Over the past few months, prices in Switzer-land have been held back considerably by theappreciation of the Swiss franc. Prices of importsand, to a lesser extent, producer prices receded andwere lower than in the previous year. Consumerprices, too, were under pressure and only slightlyexceeded the year-back level. Surveys conductedwith companies and households suggest a markeddecrease in inflation expectations. Real estateprices, however, continued to grow faster thanwould be justified on the basis of fundamental factors.

National consumer price index and components Table 4.1Year-on-year change in percent

2010 2010 2011 2011

Q3 Q4 Q1 Q2 June July August

Overall CPI 0.7 0.3 0.3 0.6 0.4 0.6 0.5 0.2

Domestic goods and services 0.6 0.4 0.5 0.6 0.6 0.8 0.7 0.7

Goods –0.1 –0.4 –0.5 –1.0 –1.0 –0.5 –0.5 –1.2

Services 0.8 0.7 0.8 1.1 1.1 1.1 1.1 1.2

Private services excluding rents 0.6 0.5 0.4 0.6 0.8 0.9 0.8 0.9

Rents 1.1 0.9 1.2 1.5 1.3 1.2 1.2 1.5

Public services 0.9 0.7 1.2 2.0 1.8 1.8 1.8 1.8

Imported goods and services 0.9 –0.1 –0.1 0.5 –0.3 0.0 –0.3 –1.2

Excluding oil products –1.3 –1.4 –1.5 –1.3 –1.9 –1.4 –1.7 –2.3

Oil products 13.9 8.6 8.5 10.5 8.9 8.2 7.7 5.1

Sources: SFSO, SNB

4.1 Consumer prices

Lower CPI inflationThe annual inflation rate as measured by the

national consumer price index (CPI) has declinedsince the last quarterly assessment (cf. chart 4.1).It stood at 0.2% in August, compared with 0.4% inMay. The decrease was primarily due to lower pricesfor imported goods and services. The recent strongappreciation of the Swiss franc is likely to have agradual impact on consumer prices and thereforecontinue to exert downward pressure on the CPI inthe coming months. The trend towards higherprices for domestic services will probably only par -tially offset this pressure.



The relationships between the inflation ratesof the various CPI components have remainedlargely stable over the past few quarters. Whereasprices for domestic goods reported a slightly posi -tive year-on-year development, those for foreigngoods were well below the year-back level. With therecent appreciation of the Swiss franc, this discrep -ancy has become more pronounced, but it hadalready been noticeable in the previous quarters(cf. chart 4.1). Prices for domestic goods are on adownward trend and thus showed negative year-on-year rates. Prices for services, by contrast, are tend -ing upwards. This pattern, too, changed little overthe past few quarters (cf. chart 4.2).

Slight fall in core inflationFor the evaluation of the CPI, the SFSO’s core

inflation rate (SFSO1), the trimmed mean (TM15)and the dynamic factor inflation (DFI) can be used.The latter two are calculated by the SNB. In thecase of the SFSO1, the same, mostly price-volatilegoods are excluded from the CPI every month,whereas in the TM15, the goods prices with thehighest and lowest annual inflation rates areexcluded each month. The two core inflation ratesare thus based on a reduced commodities basket.The broader-based DFI, by contrast, calculates coreinflation using an empirically estimated dynamicfactor model that includes other real and nominaleconomic data in addition to price data. Chart 4.3shows that core inflation has trended downwardsover the past few months after previously recordinga slight upward trend.

Revision of dynamic factor inflationThe SNB recently revised the data basis of the

DFI. In July 2011, the resulting DFI series was pub -lished for the first time in the Monthly StatisticalBulletin. Compared to the earlier series, the revisedDFI shows a bigger lead on inflation as measured bythe CPI and improved statistical features (cf.Monthly Statistical Bulletin, July 2011, p. III).

CPI: domestic and imported goods and servicesYear-on-year change

Total Domestic Imported Imported excluding oil%

–6

–4

–2

0

2

4

6

8

2007 2008 2009 2010 2011Sources: SFSO, SNB

Chart 4.1

CPI: domestic goods and servicesYear-on-year change

Goods Priv. services excl. rents Rents Pub. services%

–1

0

1

2

3

4

2007 2008 2009 2010 2011Sources: SFSO, SNB

Chart 4.2

Core inflation ratesYear-on-year change

CPI TM15 DFI SFSO1%

–1

0

1

2

3

4

2007 2008 2009 2010 2011Sources: SFSO, SNB

Chart 4.3



4.2 Producer and import prices

Considerable decline in import pricesThe total supply price index (producer and

import prices) fell substantially between May andAugust. Driven by the appreciation of the Swissfranc, price reductions were observed in a largenumber of industries. The strongest price decreaseswere registered for imported goods, in particularfor energy.

In a year-on-year comparison, the importprice index turned negative in July and stood at–2.2% in August (cf. chart 4.4). Prior to that, infla -tion for imported goods had been above zero pri -marily due to distinctly higher energy prices year-on-year, whereas prices for consumer and capitalgoods were already tending downwards at the time.

Year-on-year, the producer price index hasbeen negative since March. In August, it came to–1.8%. In this index, too, it is primarily energyprices that exceed the previous year’s level despitethe recent decline. Producer prices for other goodsmostly fell over the same period. This reflects theappreciation of the Swiss franc, which has put pres -sure not only on the prices for goods earmarked forexport, but also on the prices of goods produced forthe domestic market.

4.3 Real estate prices

Sharp rise in residential property pricesand modest rent increasesPrices for residential property have continued

to rise sharply. The prices of single-family homesand owner-occupied apartments advertised innewspapers and the internet in the second quarterwere around 5% up year-on-year. In addition toasking prices, there are further indices, some ofthem using different methods, that measure thedevelopment of actual transaction prices. Theseindices all suggest that transaction prices in thesecond quarter were also considerably higher thanone year back (cf. chart 4.5).

The increase in residential property prices isonly partially explained by the changes in popula -tion, per capita income and interest rates. The riskof adverse developments will increase if the sharpprice rise continues.

The interest rate decline remained an import-ant reason why rents did not rise to the same extent as prices for residential property. Rents forapartments available on the market and the rentalcomponent of the CPI in the second quarter were up by 2.3% and 1.3% respectively, year-on-year(cf. chart 4.6).

Transaction prices, single-family homesNominal, hedonic

Wüest & Partner Fahrländer Partner IAZIIndex

110

120

130

140

150

02 03 04 05 06 07 08 09 10 11Sources: Fahrländer Partner, IAZI, Wüest & Partner

Chart 4.5Producer and import prices

Year-on-year changeTotal Producer prices Import prices

%

–10

–7.5

–5

–2.5

0

2.5

5

7.5

2007 2008 2009 2010 2011Source: SFSO

Chart 4.4



Apartment rents and reference interest rateNominal, year-on-year change (lhs)

Existing rents Offer rentsReference interest rate on mortgage (rhs)

% %

1

2

3

4

5

6

2007 2008 2009 2010 2011

2.8

3

3.2

3.4

3.6

3.8

Sources: Federal Office for Housing (FOH), SFSO,Wüest & Partner

Chart 4.6Survey on expected movements in prices

12-month price development expectationsDecrease Unchanged Modest increase Strong increase

%

10

20

30

40

50

60

70

2007 2008 2009 2010 2011Sources: SECO, SNB

Chart 4.7

4.4 Inflation expectations

Lower inflation expectations Against the background of the appreciation of

the Swiss franc and a dampened global economicoutlook, the survey on the development of con -sumer prices suggests a distinct lowering of infla -tion expectations.

The quarterly survey conducted by SECO inJuly shows that inflation expectations of house-holds have receded in comparison with April’s figures (cf. chart 4.7). The proportion of respond -ents expecting prices to rise moderately or sharplyin the coming twelve months dropped below 50%,whereas there was a increase in the number of res -pondents who expected unchanged or falling prices.

The monthly Credit Suisse ZEW Financial Market Report, which is based on responses fromaround 40 financial market experts, reveals anongoing downward trend in inflation expectationssince April 2011. In August, only 14% of all respond -ents believed that CPI inflation rates would rise inthe coming six months, as against 77% in April and41% in June. By contrast, 49% expected no changeand 37% anticipated decreasing inflation rates.

Producer sale prices expected to sink The quarterly KOF survey asks industrial and

wholesale companies how they expect purchase andsale prices to perform in the next three months.Compared to the April figures, the results of theJuly survey indicate that the scope for priceincreases has narrowed. Whereas in April, mostrespondents expected rising purchase and saleprices, the majority in July believed that purchaseprices would remain unchanged and sale prices sink.



5 Monetary developments

Through the introduction of a minimumexchange rate for the euro, the SNB has taken astand against the significant tightening in monet -ary and financial conditions that has come about asa result of the extreme appreciation in the Swissfranc. The minimum exchange rate was announcedon 6 September, after the SNB had increased liquid -ity in three stages, from CHF 30 billion to a total ofaround CHF 200 billion. To this end, reverse repotransactions and SNB Bills that fell due were nolonger renewed. In addition, outstanding SNB Billswere repurchased, and foreign exchange swaps andrepo transactions with negative interest rates wereconcluded. As a result of these measures, short- term interest rates fell temporarily into negativeterritory.

In mid-August, long-term interest ratesdeclined to new record lows. The yield curve flat -tened, reflecting the deterioration in the economicoutlook. However, falling inflation expectationsresulted in a slight rise in real interest rates. Never -theless, they remain low, thereby helping to sup -port consumption and investment.

Even though the value of the Swiss franc hadfallen around 15% from its peak levels against theeuro and the US dollar by the end of August, itappreciated significantly again in the early days ofSeptember. Even at the minimum exchange rate ofCHF 1.20 per euro, the Swiss franc is still high, andshould continue to weaken.

In the survey on lending, a number of banksreported that they had slightly tightened theirlending standards for household mortgages due tothe risks in the real estate market. Despite this,mortgage lending rose relatively strongly in rela -tion to economic activity last quarter, owing to the low level of interest rates. The risk of adversedevelopments in the Swiss mortgage and real estatemarket remains unchanged.

5.1 Summary of monetary policy since the last assessmentAction to counter the strength of theSwiss francAt its assessment of June 2011, the SNB

decided to maintain its expansionary monetary pol -icy. It left the target range for the three-monthLibor unchanged at 0.0–0.75% and announced thatit intended to continue aiming for the lower part ofthe target range, at around 0.25%.

In August and September, the SNB adopted arange of measures to counter the strength of theSwiss franc. On 3 August, it reduced the targetrange for the three-month Libor to 0.0–0.25% andexpressed its intention of keeping it as close tozero as possible. Further, it announced that itwould increase banks’ sight deposits at the SNBfrom CHF 30 billion to CHF 80 billion and wouldtherefore stop issuing SNB Bills and repurchasingoutstanding SNB Bills, and would no longer renewliquidity-absorbing repo transactions that fell due.A few days later, the SNB raised the target for sightdeposits to CHF 120 billion (on 10 August 2011)and CHF 200 billion (on 17 August 2011). At thesame time, it announced that it would be using currency swaps as a further instrument. After thesemeasures had proved insufficient, on 6 Septemberthe SNB announced a minimum exchange rate ofCHF 1.20 per euro and stated that it would enforcethis rate with the utmost determination. To thisend, it was prepared to buy foreign currency inunlimited quantities.

Sight deposits at the SNB at record levelAt the start of the period under review, bank

sight deposits averaged some CHF 27 billion. Theyrose steadily as a result of the SNB’s action inAugust to increase liquidity, reaching new historichighs from 15 August. The weekly average on September 16 was CHF 206 billion. Total sightdeposits in Swiss francs amounted to CHF 247 inthe same period.



Following the halting of liquidity-absorbingopen market operations, repo transactions expiredand SNB Bills became due for redemption. To speedup the increase in sight deposits, the SNB alsorepurchased outstanding SNB Bills.

From 8 August, the SNB undertook currencyswaps. A currency swap is a monetary policy instru -ment to create temporary Swiss franc liquidity. TheSNB purchases foreign currencies on the spot mar -ket and simultaneously sells them at forward rates.Further, from 24 August the SNB made liquidity- providing repo transactions with one-week matur-i t ies available on the market. These measuresresult ed in negative market interest rates.

Rise in banks’ surplus reservesStatutory minimum reserves averaged CHF 10

billion between 20 May and 19 August 2011. Theywere thus practically unchanged from the precedingperiod (20 February to 19 May 2011). On average,banks exceeded the requirement by around CHF 32.1 billion (previous period: CHF 20.2 billion).The average compliance level increased from 306%to 419%.

5.2 Money and capital market interest ratesThe three-month Libor stood at 0.18% in the

first six weeks following the June assessment. Itdropped significantly in August following the SNB’sannouncement of measures to counter the strengthof the Swiss franc. On 5 September it dropped to anew historic low of 0.0% (cf. chart 5.1).

In the second half of August, the differencebetween the three-month Libor and the three-month OIS – which is an indicator of the tensionand risk on the money market – temporarily increased to levels last seen during the financial crisis of2007/2008 (cf. chart 5.2). While at that timeexpansion of the three-month Libor/OIS interestrate spread reflected the rise in the three-monthLibor caused by rising credit and liquidity risks, therise in August 2011 was driven principally by theexceptionally high liquidity, which was reflected in the negative OIS.

Money market ratesDaily figures

3M Libor SNB repo rate SNB reverse repo rateTarget range 3M OIS

%

–0.5

0

0.5

1

1.5

2

2.5

3

3.5

2007 2008 2009 2010 2011Sources: Bloomberg, Reuters, SNB

Chart 5.1Spread between 3M Libor and 3M OIS

Daily figuresSpread

%

0.25

0.5

0.75

1

1.25

1.5

1.75

2007 2008 2009 2010 2011Sources: Bloomberg, Reuters

Chart 5.2



Term structure of Swiss Confederation bondsAfter Nelson-Siegel-Svensson. Years to maturity (hor. axis)

Mid-September 11 Mid-June 11 Mid-March 11%

0.5

1

1.5

2

2.5

0 5 10 15 20Source: SNB

Chart 5.3

Long-term interest rates at a new lowMedium and long-term interest rates, which

had risen considerably since their temporary low of summer 2010, have been falling again since Apriland have reached new historic lows. The yield onten-year Swiss Confederation bonds, for example, fellfrom 1.7% in mid-June to 1.0% in mid-September.Yields on corporate bonds with high credit ratingsmoved largely in parallel with those of Confederationbonds, while yield premia on lower-rated corporatebonds have risen since the deterioration of the economic outlook at the end of July. The decline in long-term interest rates is attributable to two factors: high demand for Swiss franc investmentsfrom investors seeking a safe haven, and marketexpectations that short-term rates will remain lowfor a prolonged period.

Yield curve shifts downwardsAs a result of the decline in both short and

long-term interest rates, the yield curve shifteddownwards between June and September (cf. chart5.3). In addition, in September it was flatter thanin June. The difference between the yield on ten-year Confederation bonds and the three-monthLibor was 1.0 percentage points in mid-September,as against 1.5 percentage points in mid-June andan average of 1.3 percentage points since the mid-1990s.

Estimated real interest rate

3 years, ex ante%

–0.5

–0.25

0

0.25

0.5

0.75

1

1.25

1.5

2007 2008 2009 2010 2011Source: SNB

Chart 5.4

Real interest rates remain lowEstimated real interest rates rose slightly

between June and September because estimatedinflation expectations fell faster than nominalinterest rates. The estimated three-year real inte r-est rate was –0.1% in September 2011, comparedwith –0.2% in June (cf. chart 5.4). The inflationexpectations used to calculate real interest ratesare based on inflation forecasts generated by variousSNB models.



Monetary conditions dominated byexchange rate movementsIn recent months, monetary conditions have

been dominated by the sharp movements of theSwiss franc exchange rate. The monetary conditionsindex (MCI) shown in chart 5.6 combines changesin the three-month Libor and the nominal trade-weighted external value of the Swiss franc. To takeaccount of uncertainty regarding the relative impact of changes in interest rates and exchangerates, two different weightings are used for the MCI(3:1 and 5:1). The index is reset to zero immediate-ly after each monetary policy assessment.

Owing to the appreciation of the Swiss franc,the MCI rose until the first half of August. This indi-cated a tightening of monetary conditions, despitethe fact that the three-month Libor fell in August.The measures to combat the strength of the Swissfranc, and especially the announcement of a min -imum exchange rate against the euro, resulted in aconsiderable correction. By mid-September the MCIwas slightly negative. Monetary conditions weretherefore more expansionary in mid-Septemberthan they had been at the time of the June assess-ment.

5.3 Exchange rates

Further appreciation of the Swiss francuntil AugustFollowing the monetary policy assessment

in June, the euro and US dollar dropped to new lows against the Swiss franc (cf. chart 5.5). On 10 August 2011, the exchange rates for the euroand US dollar were just above CHF 1.00 and CHF 0.70 respectively. The factors adversely affect-ing the US dollar included the dispute between the political parties about US Federal budget cuts and the deterioration in the economic outlook. Asin previous periods, the euro was weakened byinvestors’ concern about the debt problems in vari - ous euro area countries.

As a result of the measures taken in August tocounter the strength of the Swiss franc, a reversalof the trend started on 10 August, but rapidly lostmomentum. Only the announcement of a minimumexchange rate against the euro on 6 Septemberbrought about a substantial weakening of the Swissfranc. In the morning, before the announcement,the exchange rate against the euro stood at CHF 1.10. Afterwards it rose rapidly above the min-imum exchange rate. The Swiss franc also weakenedagainst the other currencies. In mid-September, the rate of the Swiss franc against the euro was CHF 1.20 and against the US dollar, CHF 0.88, com -pared to CHF 1.20 and CHF 0.85 at the time of theJune assessment.

Exchange ratesDaily figures

USD in CHF EUR in CHF (rhs)

0.7

0.8

0.9

1

1.1

1.2

1.3

2007 2008 2009 2010 2011

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Source: SNB

Chart 5.5MCI nominal

Daily figuresMCI 3:1 MCI 5:1

–2

–1

0

1

2

3

4

5

Apr 11 May Jun Jul Aug SepSource: SNB

Chart 5.6



Trade-weighted external value of Swiss franc2005 = 100

Real (27 countries)Index

95

100

105

110

115

120

125

130

95 00 05 10Source: Bank for International Settlements

Chart 5.7 Real external value of the Swiss franc atvery high levelIn August, the real trade-weighted external

value of the Swiss franc climbed to a new high,which was considerably higher than the 1995 level(cf. chart 5.7). At the new level, the Swiss francwas massively overvalued in real terms. The riseshows that the nominal appreciation of the Swissfranc is only offset to a very small extent by lowerinflation than in other countries. As a result of the correction in September, the real external value of the Swiss franc should be back around the June level. Thus the Swiss franc is still high. Theexchange rate situation continues to present serious problems for the competitiveness of Swissexporters.

5.4 Stock markets

Share price downslide in AugustPrices of shares in the Swiss Market Index

(SMI) have declined considerably since the Juneassessment. In the first half of August, they fell to their lowest level since March 2009. By mid-September, the SMI had lost around 16% since thestart of the year (cf. chart 5.8).

As usual, the decline in share prices wenthand-in-hand with an increase in market uncer - t ainty. The volatility index of the SMI shows thatexpected 30-day volatility rose rapidly betweenmid-June and mid-September, reaching levels notseen since the financial crisis intensified in autumn2008.

Against the background of the deterioration in the economic outlook, Swiss share prices havemoved analogously to those in most other industri-alised countries. However, the extreme volatility ofthe Swiss franc exchange rate has played a specialrole. Prices of Swiss shares reflect the impact of thestrong currency on valuations and concern aboutthe impact of the franc’s strength on the compet i-tiveness of Swiss companies and on Swiss economicgrowth. Shares in companies in the financial, in dustrial and construction industries have all sustained heavy losses (cf. chart 5.9).

Share prices and volatilityDaily figures

SMI Volatility index of SMI (rhs)

4 500

5 000

5 500

6 000

6 500

7 000

7 500

8 000

8 500

2007 2008 2009 2010 2011

10

20

30

40

50

60

70

80

90

Source: Thomson Financial Datastream

Chart 5.8

Selected SPI sectorsBeginning of period = 100, daily figures

Banks Industry ConstructionIndex

60

70

80

90

100

110

120

130

140

2010 2011Source: Thomson Financial Datastream

Chart 5.9



5.5 Monetary and credit aggregates

Sharp rise in monetary baseThe monetary base, which is composed of bank-

notes in circulation, plus the domestic banks’ sightdeposits with the SNB, increased very substantiallyin August, reflecting the increased liquidity on the Swiss franc money market. The monetary basehad already risen significantly in autumn 2008 inresponse to the monetary policy reaction to theintensification of the financial crisis and hadremained at a high level since then, with somelarge fluctuations (cf. chart 5.10).

Strong growth in the broadly based monetary aggregatesThe M1, M2 and M3 aggregates provide a bet -

ter insight than the monetary base into the impactof monetary policy on the economy and prices. Theyhave also grown strongly since autumn 2008 (cf.chart 5.11). In August, M1 (cash in circulation,sight deposits and transaction accounts) was 9.7%above its level a year earlier, while M2 (M1 plussavings deposits) was 8.4% higher and M3 (M2 plustime deposits) rose by 7.6% in the same period(table 5.1). At present, the increase in M3 is beingdriven mainly by the growth in lending.

Higher growth in lending The rise in bank lending has picked up slightly

even though the results of the SNB’s quarterly survey of lending suggest that the banks slightlytightened lending standards and conditions formortgage lending to private households in the second quarter.

Mortgage claims, which account for aroundfour-fifths of total bank loans, increased by a year-on-year rate of 4.8% in the second quarter andJuly, compared with 4.6% in the first quarter. Thegrowth in mortgage claims rose considerably inautumn 2008 following the reduction in the three-month Libor and had been slowing slightly sincethe start of 2010 (cf. chart 5.12).

Monetary aggregatesSeasonally adjusted

M1 M2 M3 Monetary base (rhs)In CHF billions In CHF billions

100

200

300

400

500

600

700

800

95 00 05 10

40

60

80

100

120

140

160

180

Source: SNB

Chart 5.10

Growth of monetary aggregatesYear-on-year change

M1 M2 M3%

0

10

20

30

40

50

2007 2008 2009 2010 2011Source: SNB

Chart 5.11

Mortgage claims and 3M Libor

Mortgage claims (year-on-year change) 3M Libor%

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11Sources: Reuters, SNB

Chart 5.12



the previous year. This decline mainly reflects the appreciation of the Swiss franc. Calculated atcon stant exchange rates, there was a consid-erable increase in loans denominated in foreigncurren cies.

Other loansYear-on-year change

Total In CHF In foreign currenciesTotal at constant exchange ratesIn foreign currencies at constant exchange rates

%

–15–10–505

10152025

2009 2010 2011Source: SNB

Chart 5.13

The year-on-year rate of change in other loansmoved into positive territory in June (cf. chart5.13). Other loans denominated in Swiss francshave been above the previous year’s levels sinceMay. By contrast, the Swiss franc value of the loansdenominated in foreign currencies is lower than in

Monetary aggregates and bank loans Table 5.1Year-on-year change in percent

2010 2010 2011 2011

Q3 Q4 Q1 Q2 June July August

M1 10.7 10.4 9.2 8.7 6.3 4.4 4.8 9.7

M2 10.2 9.7 8.4 7.9 6.2 5.0 5.3 8.4

M3 6.4 6.5 6.4 7.0 6.0 5.2 6.0 7.6

Bank loans total1, 3 3.8 3.5 3.8 3.6 3.8 4.4 4.2 –

Mortgage claims1, 3 5.0 4.9 4.7 4.6 4.8 4.8 4.8 –

Households2, 3 4.9 4.7 4.7 4.4 4.4 4.5 4.5 –

Private companies2, 3 5.2 5.1 4.7 5.2 5.5 5.4 5.4 –

Other loans1, 3 –1.1 –2.8 –0.6 –0.8 –0.3 2.8 1.7 –

Secured1, 3 3.8 3.5 4.3 6.6 3.6 5.0 3.7 –

Unsecured1, 3 –3.9 –6.4 –3.5 –5.1 –2.8 1.3 0.4 –

1 Monthly balance sheets2 Credit volume statistics3 Growth rates for the bank loans item and for its components include information provided by banks on changes in their classification

practices. Consequently, they may deviate from growth rates published in the Monthly Bulletin of Banking StatisticsSource: SNB




SNSNB 32 Quartalsheft 3/2011

Business cycle trendsSNB regional network

Summary report for the attention of the Governing Board of the Swiss National Bank for its quarterly assessment of September 2011

Third quarter of 2011The Swiss National Bank’s delegates for regional economic relations are constantly in touch with a large number of enterprises from the different economic sectors and industries. Their reports, which contain subjective evaluations by these companies, are a valuable source of information forassessing the economic situation. The following pages contain a summary of the most important results of the talks held in July and August 2011 with164 representatives of various industries on the current and future situation of their companies and the economy in general. The selection of companies ismade according to a model that reflects Switzerland’s production structure; the companies selected differ from one quarter to the next. The referenceparameter is GDP excluding agriculture and public services.

Region Delegate

Geneva Marco FöllmiItalian-speaking Switzerland Mauro PicchiMittelland Martin Wyss

Hans-Ueli Hunziker (acting delegate)Northwestern Switzerland Markus Zimmerli (acting delegate)Eastern Switzerland Jean-Pierre JetzerVaud-Valais Aline ChablozCentral Switzerland Walter NäfZurich Markus Zimmerli




Summary

Confidence in the third quarter of 2011 wasstrongly influenced by the exchange rate situation.Accordingly, companies’ assessment of the situ -a tion became generally gloomier during the surveyperiod. The economy lost momentum in all threesectors – manufacturing, construction and services.This was most apparent in the services sector. Over -all, the demand for labour increased only marginally.Uncertainty about future developments has mountedperceptibly of late.

In terms of real growth in sales, prospects inthe manufacturing industry and the services sectorare still positive – but much less so than in the pre -ceding quarters. Only in the construction industryis capital expenditure likely to continue growing.Technical capacity utilisation in the Swiss economyis normal to very high in all three sectors, and looksset to stabilise at the current level in the monthsahead.

According to the talks held in July and August,concern over future developments has increasedtangibly. Further exchange rate movements are themain focus of attention. The export industry is suffering from extremely heavy pressure on margins.Measures such as a hiring or investment freeze, or an extension of working hours without a corres-ponding pay rise, have become widespread. Theprospect of a slowdown in the world economy andof further negative repercussions of the debt crisisin Europe has given rise to further uncertainty.

As in the previous quarters, reactions to theappreciation of the Swiss franc vary considerablyfrom one sector to the next; overall, however, thepressure on the economy has risen substantially(cf. ’Ex change rate survey: Effects of Swiss francappreciation and company reactions’, pp. 38–43).



1 Business activity

Manufacturing Despite the difficult exchange rate situation,

the manufacturing industry benefited from itsexisting backlog of orders. Turnover in real termsrose both year-on-year and quarter-on-quarter.How ever, momentum weakened considerably fromthe previous quarter in all industries except watchmaking, which proved very resilient.

As in the preceding quarters, business showeda particularly sharp year-on-year improvement inthe watchmaking, metal processing and machineryindustries, as well as in parts of the machine toolsindustry. The electrical and electronic componentsproduction industry also performed very well.

The export industry continued to benefit fromstrong demand emanating from the emergingeconomies of Asia, and from northern and easternEurope. Further contributions to growth came fromthe US and South America. Within the euro area,demand from Germany remained brisk.

ConstructionFor the construction industry, business activ-

ity continued to be very positive, although themomentum slowed slightly. Turnover was up sub -stantially on a year-on-year basis. Although thequarter-on-quarter comparison was also positive,the increase was less pronounced than in the sec -ond quarter of 2011. Turnover remains strong inresidential construction and also in the finishingtrade. Given the ample backlog of orders, there isno end in sight to the fundamentally positive trend.In many places, capacity in allied building trades,too, is being pushed to the limit; some respondentsreported that order books ’have never been so full’.

In the light of recent interest rate develop -ments, a number of respondents expressed theirconcern about real estate market risks.

ServicesSales trends in the services sector have

stabilised both year-on-year and quarter-on-quarter. As a result, the pace of growth has tailedoff appre ciably.

The slowdown was especially noticeable in thewholesale and retail segments, in the hospitalityindustry, and in banking. Numerous hotel ownersexperienced a sharp fall-off in overnight stays dur -ing the summer. As in the previous quarter, how -ever, a clear distinction must be made between citytourism – where business continues to be buoyant– and the mountain regions, where the situation isdifficult. Retailing has been hit by the tendencyamong Swiss residents to go shopping in areas justacross the border – and, recently, further afield. Theautomobile industry and the furniture trade havealso been seriously affected by this phenomenon.On the other hand, business has remained brisk inthe engineering and planning consultancy seg -ments, as well as among real estate agents andtransport firms. Here, sales were considerably higherthan in the previous quarter.



2 Capacity utilisation

After rising sharply in the previous quarter,utilisation of production capacity has fallen backslightly. Capacity utilisation in the constructionindustry remains high. In manufacturing, utilisationwas rated as fairly high, while in the services sectorit was rated as normal. However, the problem of lowor inadequate profitability despite high capacityutilisation has worsened across a broad front.

The watchmaking industry and its suppliersreported a very high level of capacity utilisation.Manufacturers of computer equipment, electronicand optical devices as well as electrical equipmentreported relatively high utilisation. Reports fromthe machinery industry were very mixed, rangingfrom high to low capacity utilisation.

The construction industry saw technicalcapacity utilisation persisting at the previous quar -ter’s high level. All the respondent firms were stillvery satisfied with capacity utilisation, althoughsome of them would have liked their business to beproceeding at a somewhat slower pace. Companyrepresentatives expect the level of capacity utilisa -tion to stabilise in the months ahead, and do notsee any signs of a downturn.

In the services sector, capacity utilisation wasrated as normal overall – as in the preceding quar -ters. The companies with the highest level of utilisation were engineering, architectural and consult -ing offices along with transport firms. Capacity utilisation in the IT industry has risen again. Traveloperators, too, reported a rather high level ofcapacity utilisation. In the financial sector, utilisa -tion was rated as normal. By contrast, capacity utilisation in trading (car trade, wholesaling andretailing) and in the hospitality industry has fallenmarkedly.

3 Demand for labour

In the manufacturing industry, demand forlabour has fallen off slightly compared to the previ -ous quarter. Overall, representatives of manufactur -ing companies now only rated their staffing levelsas being slightly on the low side. Owing to the high level of uncertainty, companies are pursuingcautious HR policies. Their recruitment needs havewaned accordingly. Companies in the metals pro-cessing and electrical equipment manufacturingsegments reported a shortage of labour.

In the construction industry, the demand forlabour continued to rise. The majority of respond -ent companies rated the size of their current work -force as somewhat low, and the difficulties that anumber of them are experiencing in recruiting suit -able employees have intensified. In many cases,therefore, insufficient availability of staff was alimiting factor.

In the services sector, staff levels were gener -ally considered appropriate. Architectural offices,engineering firms, planning offices, IT firms, trans -port companies and – to some extent – travel oper -ators all reported a significant need to recruit staff.The hospitality industry is still overstaffed, andthis now also applies to trading.

Whereas recruitment problems in the con -struction industry have worsened, the situation inthe services sector, and to some extent also in manufacturing, has eased. Generally speaking, however,specialists and highly qualified staff still tended tobe hard to find.

Per capita labour costs remained on an upwardtrend in most business sectors, although the trendwas slightly less marked than in the previous quarter. In the construction industry in particular, higher demand for personnel and the tight labourmarket were pushing up costs. Companies in theelectrical industry in particular were faced withhigher per capita costs. In the services sector, itwas mainly IT firms, real estate companies, consult- ancies, transport companies and recruitment agen -cies that reported higher labour costs.



4 Prices, margins and earnings situationMargins, which were already judged to be tight

in the preceding quarters, narrowed considerably inthe third quarter. In the manufacturing and servicessectors in particular, margins are increasinglyfalling short of the levels considered to be normal.This can be ascribed mainly to the strength of theSwiss franc and to the rises in some commodityprices. Measures such as a hiring or investmentfreeze, or an extension of working hours without acorresponding pay rise, have become widespread. Agrowing number of firms are also considering out -sourcing abroad in the medium term.

It was once again manufacturing which suf -fered most from squeezed profit margins. Marginslook set to remain under heavy pressure: althoughmost companies now expect purchase prices to fallrather than continue rising, they will also have tomake major concessions on sale prices in Swissfrancs.

In construction, profit margins were judged tobe normal – as in the previous quarters. Companyrepresentatives were now no longer expecting rawmaterials purchase prices to rise. At the same time,businesses no longer saw any possibility of beingable to achieve higher sale prices. Their marginsmight therefore stabilise in the coming months.

Overall, respondents in the services sectorregarded their profit margins as below average. Theoverall result continued to be adversely affected bybanks’ margins, which were clearly unsatisfactory.Low interest rates coupled with exchange rate andstock market developments had a significantimpact on bank revenues. Representatives ofwholesale and retail firms, hotels and certain fidu -ciary and consulting companies also rated theirprofit margins as unsatisfactory. By contrast, trans -port companies and travel agencies reported a rela -tively normal margins situation. Companies in thereal estate management industry reported highmargins.

As in the previous quarters, companies takingpart in the July/August 2011 survey were againasked about the impact of the Swiss franc’s appre -ciation on their business. This revealed a consider -able deterioration compared to their assessment inthe second quarter of 2011: 58% of firms now stated(compared to 48% in the previous survey) that they

were experiencing negative effects overall, 31%(37%) of businesses were unaffected by the appre-ciation, and 10% (15%) reported positive effects.Once again it was manufacturing that was easilythe worst affected by the Swiss franc strength;compared to the previous quarter, pressure on thissector has increased sharply (cf. ’Exchange rate survey: Effects of Swiss franc appre ciation and company reactions’, pp. 38–43).



5 Outlook

Uncertainty about future developments mount -ed perceptibly of late, especially towards the end ofthe survey period. The cautious stance among com-panies is reflected above all in their muted recruit-ment and investment plans. Their turnover expect-ations for the next few months have been reducedsubstantially compared to the previous quarter.

The majority of manufacturing companiesexpect turnover to continue rising gradually in thenext six months. In some segments, however, thevolume of new orders points to a marked slowdown.Capacity utilisation will probably stabilise and anyfurther increases in employment will be only sporadic.

In the construction industry, confidenceremains high. The positive trend in both turnovergrowth and recruitment plans is continuing. In manycases, order books are full well into next year. Thefinishing trade is especially optimistic.

Companies in the services sector are also gen -erally upbeat about the business trend in the nextsix months. Turnover growth is projected to be con -siderably lower than in the previous quarter, how-ever. Capacity utilisation and headcounts are likelyto stabilise at their present levels. Representativesof IT and travel operators rate their turnoverprospects very optimistically indeed. In contrast to the mountain regions, city-based tourism is stillperforming well, though some respondents ex -pressed doubts about the reliability of whatappears to be a good level of bookings. Recruit -ment firms are also positive, as are some insurers.Bank representatives, however, are expecting main -ly negative trends. Retailers are hoping that con -sumer spending will bounce back in the comingmonths.

With regard to international risks, attention isfocused on a slowing of the world economy and onfurther repercussions from the European debt crisis.Quite a few industries are facing raw material short -ages. Fears expressed in the previous quarter aboutdelivery bottlenecks and price rises for certainproduct categories in the wake of the Fukushimaaccident have not, on the whole, been borne out.Nor have worries about future energy prices becomeany more concrete.

On the other hand, erosion of margins – large -ly the result of the Swiss franc’s appreciation – iscausing a great deal of concern for the companiesaffected. As they expect purchase prices to softenover the next few months but will also have to makeconsiderable price concessions when selling theirproducts, the margins situation could at least sta -bilise. Many respondents hinted at serious conse -quences for their business if the Swiss franc were tostay at its current high level. A number of themexpressed their unease about the persistently lowinterest rates.

The generally high level of uncertainty aboutfuture economic developments is reflected in capital spending plans: whereas in the previous quartercompanies in all three sectors had still been plan -ning to invest more, the latest survey shows thatthis now only applies to the construction industry.In manufacturing and the services sector, invest -ment looks set to remain at current levels. At somemanufacturing companies, there is talk of graduallycutting back investment in Switzerland in favour ofnew investment abroad.


SN

Exchange rate survey:Effects of Swiss franc appreciation and company reactions SNB regional network

Report for the attention of the Governing Board of the Swiss National Bankfor its quarterly assessment of September 2011

Third quarter of 2011In the economic survey for the third quarter, which was carried out in July and August 2011, delegates from the SNB’s regional network once again systematically raised the exchange rate situation with companies, posing questions with the aim of quantifying the effects of the appreciation of the Swiss franc. A total of 164 companies took part in the survey. The selection of companies is made according to a model that reflects Switzerland’s production structure. The companies selected differ from one quarter to the next. The reference parameter is GDP excluding agriculture and public services.




1 Overall results of the survey

With the exchange rate situation deterioratingfurther, the results for the economy as a wholeshowed a significant worsening compared to thosefor the previous quarter. Of the respondent companies, 58% (previous quarter: 48%) claimed to beexperiencing negative effects from the appreciationof the Swiss franc (35% significantly and 23% mod -erately negative). A total of 31% of companies(37%) said they had not felt any significant effecton their business activities from the appreciationof the Swiss franc. As can be seen from chart 2,these are mainly companies that have no exchangerate exposure. In addition, hedging strategies ormutually offsetting factors help to neutraliseexchange rate effects. Accordingly, most of thesecompanies are not anticipating any impact in thenear future either (cf. chart 3). However, the per -centage of such companies has fallen sharply fromthe previous survey. If exchange rates were toremain at their present level, a further worsening ofthe survey results in the next quarter would be likely.

Positive effects from the appreciation of theSwiss franc were experienced by the remaining 10%of companies included in the survey (15%).

The proportion of companies in the manufac -turing sector that felt significantly negative effectscontinued to increase (up from 58% to 64%). Thepercentage that rated the effects as ’moderatelynegative’ also rose – from 15% to 20%. In the ser -vices sector, the majority of companies (56%) arenow reporting negative effects from the strength ofthe Swiss franc. While the proportion experiencing

moderately negative effects remained virtually con -stant (approximately 30%), the proportion of com -panies reporting significantly negative effects doubled to almost 30%. In the construction industry,the situation remained stable: as before, abouttwo-thirds of companies are unaffected by theSwiss franc’s strength. A total of 29% of companiesreported positive effects. It should be noted thatindustrial companies with construction-relatedactivities are included under manufacturing. Thusany negative effects detected by such companies asa result of fiercer foreign competition do not influ -ence the construction industry results in this survey.

2 Negative effects – where and how?In all, 96 companies reported moderately or

significantly negative effects from the appreciationof the Swiss franc. Chart 4 shows the markets wherethese negative effects were observed and the formthey took. As expected, export activities were againhardest hit. In most cases the companies that wereadversely affected found themselves faced withlower profit margins in their foreign sales markets(almost two-thirds of companies), lower sales vol -umes (43% of companies) and lower Swiss franc- equivalent sale prices (49% of companies). Thephenomenon of unsatisfactory sales prices was thusmore marked than in the previous quarter, whichsuggests that only a limited number of Swissexporters were able to achieve higher sales pricesin foreign currencies and thereby (to some extent)

0 10 20 30 40 50 60 70 80 90 100%

Effects of appreciation of Swiss franc, by sector164 companies

Manufacturing

Construction

Services

Total

Significantly negative Moderately negative No effect Moderately positive Significantly positive

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 1



offset the appreciation. It was also clear that companies are losing orders because of the unfavour -able competitive environment. In the domesticmarket, too, a higher proportion of firms reportedtighter margins, lower sales prices and reducedsales.

In addition to the direct effects on the exportindustry, indirect effects were reported by suppliersto export-oriented companies (cf. lower third ofchart 4). These indirect negative effects also seemto have increased somewhat.

The industries hit hardest by the negativeeffects of the appreciation were chemicals andpharmaceuticals, metals, manufacturers of elec -tronic products and precision instruments, and themachinery, textiles and clothing industries. The

results for the hospitality industry deterioratedcompared to those from the previous quarter’s sur -vey. Of the total of 15 hotel representatives inter -viewed, five reported moderately negative and fivereported significantly negative effects from theappreciation, while the remaining five representa -tives said the strength of the Swiss franc had hadno significant impact. City-based tourism has con -tinued to perform much better than tourism in themountain regions. The picture for retailing hasdeteriorated considerably since the previous quar -ter. Whereas the result three months ago wasmixed, now practically all retailers surveyed arereporting negative effects from the Swiss franc’sappreciation. The tendency of Swiss residents to goshopping abroad has increased – and the impact is

Companies not affected: expectations while the exchange rate remains unchanged51 companies

Significantly negative effects

Moderately negative effects

Still no effect at all

Moderately positive effects

Significantly positive effects

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 3

Companies not affected: explanations51 companies, multiple answers possible

Not exposed to exchange rate

Hedging conducted even before appreciation

Natural hedging

Positive/negative effects offset each other

Other

No response

Source: SNB0 10 20 30 40 50 60 70 80 90 100%

Chart 2



no longer confined to border areas. The situation inwholesaling has also worsened substantially: themajority of respondents reported moderately oreven significantly negative effects. Most banksreported adverse effects. By contrast, representa -tives of the real estate management and brokerageindustry, fiduciary firms and catering companiesgenerally reported either no effects or positiveeffects.

3 Negative effects – how are companies reacting?

In addition, companies were asked about themeasures they had already taken to counter theeffects of the Swiss franc’s appreciation. Chart 5shows the range of these reactions. Overall, theseresults were largely unchanged compared to theprevious quarter. A large majority of companieshave taken action. The most frequent measuresbeing taken are aimed at reducing production costs.Labour costs have mainly been cut by lowering theheadcount or halting recruitment – or, more recent -ly, by increasing working hours while keeping pay

0 10 20 30 40 50 60 70 80 90 100%

No reactionPrices:

Raise prices abroadRaise domestic prices

Domestic cuts:Reduce staff

Cut wages/staff compensationReduce other domestic costs

Other measures:Move production abroad

Diversify currencyNatural hedging

Financial hedgingStrategic considerations

No response

Negatively affected companies: reactions to appreciation of Swiss franc96 companies, multiple answers possible

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 5

0 10 20 30 40 50 60 70 80 90 100%

Negatively affected companies: effects of appreciation of Swiss franc96 companies, multiple answers possible

Foreign sales:Lower profit margins

Lower Swiss franc − equivalent priceLower volumes

Domestic sales:Lower profit margins

Lower domestic pricesLower volumes

Indirect effects:Lower profit margins

Lower pricesLower volumes

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 4



levels unchanged. The percentage of companiesconsidering cuts in headcount has risen to about26%; in the previous quarter, this figure was stillwell below 20%. In most cases, however, cost-cut -ting measures have continued to focus on otherproduction costs. The use of hedging strategies(mainly in the form of natural hedging) is wide -spread. Some companies are trying to enhance theirrange of products and services in terms of valueadded. About a quarter of the adversely affectedcompanies said they were also engaging in funda -mental strategic thinking about the future of thecompany.

4 Positive effects – where and how?A total of 17 respondent companies (10% of

the total, as against 15% in the previous quarter)were experiencing moderately or even significantlypositive effects from the appreciation of the Swissfranc. As can be seen from chart 6, the greater partof the positive effects came in the form of lowerinput costs (approximately 65% of cases) and/orimproved profit margins (30% of cases). However,the percentage of firms that were able to improvetheir margins was much lower than in the previousquarter (78%). Moreover, a quarter of the com -panies mentioned more favourable conditions for

0 10 20 30 40 50 60 70 80 90 100%

Positively affected companies: reactions to appreciation of Swiss franc17 companies, multiple answers possible

No reaction

Reduce price in Switzerland

Increase investment in equipment/R&D

Pay higher wage/Profit sharing

Other

No response

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 7

0 10 20 30 40 50 60 70 80 90 100%

Positively affected companies: effects of appreciation of Swiss franc17 companies, multiple answers possible

Lower input costs

Increased sales volumes

Increased/restored margins

Cheaper equipment/Product development

Other

0 10 20 30 40 50 60 70 80 90 100%Source: SNB

Chart 6



investment and for research and development; thisproportion has also decreased by comparison withthe preceding quarter (34%). Chart 7 suggests thatan improvement in business conditions will primar -ily result in lower sales prices in Switzerland. Of thecompanies reporting positive effects, 41% statedthat they were addressing the situation this way –double the percentage in the last survey. To a lesserextent, the more favourable business conditionswill also lead to higher investment in equipment,research and development, or to higher salaries orincreased profit-sharing.

5 Expectations for the near future remain positiveIn the survey, companies were asked about

their expectations with regard to real turnover,staff numbers and investment in the comingsix/twelve months. Their answers are recorded on a scale ranging from ’significantly higher’ to’significantly lower’. Based on this information, anindex is created by subtracting the negative assess -ments from the positive ones (net assessments).Significantly positive and significantly negativeassessments are assigned higher weights than

slightly positive or slightly negative assessments.The index is constructed in such a manner that itsvalue can range between +100 and –100. A positiveindex value reflects positive assessments overall,while a negative value shows negative assessmentsoverall.

The evaluation was conducted for two sub- groups – first, companies affected negatively bythe appreciation of the Swiss franc, and second, allother companies. The situation has changed de- cisively from that in the previous quarter. On bal -ance, companies’ assessments show that they arestill expecting turnover to increase in real terms, ascan be seen in chart 8. However, there are majordifferences between the third-quarter assessmentsof the two sub-groups: while the adversely affectedcompanies were on balance expecting only a slightincrease in sales, the figure for all other companiesremained as high as in the previous quarter. Interms of employment trends, the negatively affect -ed companies – unlike those not experiencing anyadverse impact – were actually expecting cuts inheadcount. In both sub-groups, planned invest -ment appears to be standing still. Overall, there -fore, companies’ assessments of these issues show asignificant deterioration compared to the previousquarter’s survey.

0

5

10

15

20

25

30

35

Expectations: turnover, employment and investment

Negatively affected companies All other companiesNet balance1

Real turnover Employment Investment1 Weighted positive estimates of companies minus weighted negative estimates regarding the future development of real turnover,employment and investment. The time horizon is 6 months (for real turnover and employment) or 12 months (for investment).Source: SNB

Chart 8


SN

SNB Policy Paper: Swiss franc bond market – smooth sailing through the financial crisis

Gero Jung, Investment Strategy and Financial Market AnalysisSwiss National Bank, Zurich


706096_QH_3_11_spez_kap_ENG.qxp:705638_QH_1_11_IN_d 22.9.2011 14:16 Uhr Seite 44


Developments in bond markets are of consid-erable interest to central banks. The reasons whycentral banks monitor bond markets in domesticcurrency are manifold. First, certain central banks,such as the Swiss National Bank (SNB), conductmonetary policy by steering the level of the inter-est rate in the money market.1 The interest rate inquestion, the three-month Libor, is a reference ratein the interbank market and acts as a benchmarkrate for the broader capital market. It is equallyimportant for both the bond and swap markets.Developments in the bond market are thus import -ant in the transmission mechanism for monetarypolicy, and provide valuable information for eco-nomic and monetary policy analysis. A second rea-son is that, in Switzerland, as in many other coun-tries, the central bank acts as the government’sbanker.2 As such, it processes payments on behalfof the Confederation, issues money market debtregister claims and bonds, handles the safekeepingof securities and carries out money market and for-eign exchange transactions. Third, as it holds a sig-nificant amount of Swiss franc bonds, the SNB hasa direct interest in movements in the Swiss francbond market. Fourth, bonds denominated in Swissfrancs are important for the SNB’s eligible collat - eral for repo transactions. Finally, domestic bondmarkets can play an important role in measurestaken to deal with financial crises. As part of theextraordinary measures taken during the recent cri-

sis, the SNB purchased Swiss franc bonds issued byprivate sector borrowers, with the goal of prevent-ing a credit crunch in Switzerland. Thus, overall,the domestic bond market constitutes a vital com-ponent of the Swiss financial system. More general-ly, it is a key element of the Swiss economy, as inall industrialised countries.

In its examination of the Swiss franc bondmarket, this report is structured in two parts. Thefirst provides an overview of the main characteris-tics of the Swiss franc bond market, while the sec-ond reviews market developments, particularlythose which occurred before and after the financialcrisis. The findings show that this market did notexperience a bond market closure in the late 2000s,and foreigners did not alter their demand bysignifi cantly increasing their issuance activity inSwiss francs. Similarly, central banks around theworld have not appreciably changed their holdingsof Swiss franc assets.

1 Characteristics of the Swiss francbond market The Swiss franc bond market has three main

features. First, in an international context, thegrowth of the Swiss franc bond market is relativelyslow. A second feature is that the private, non-pub-lic debt market overwhelmingly dominates the pub-

Outstanding bonds in local currenciesBeginning of period = 100, in logs

Total USD CAD JPY EURGBP CHY Rupees CHF

Index

2.5

5

7.5

10

12.5

15

17.5

00 01 02 03 04 05 06 07 08 09 10Source: Bank for International Settlements (BIS)

Outstanding CHF bondsIn percent of Swiss GDP

Non-Swiss government Swiss government%

20

30

40

50

60

70

80

90

2002 2003 2004 2005 2006 2007 2008 2009 2010Sources: SIX Swiss Exchange Ltd, SNB

Chart 1 Chart 2

1 Owing to the massive overvaluation of the Swiss franc, on 6 September 2011 the SNB set a minimum exchange rate of CHF 1.20 per euro.2 According to art. 5 para. 4 and art. 11 of the National Bank Act(NBA), the SNB is required to provide banking services to the SwissConfederation.


SNB 46 Quarterly Bulletin 3/2011 SN

lic debt market. This stands out when comparingthe Swiss market with those of other industrialisednations. Third, the specific structure of the Swissfranc bond market shows that the market for for-eign issuers is larger than that for domestic, Swiss-based borrowers.

a) Slow growth compared to internationalbond marketsThe growth of the Swiss franc bond market has

been comparatively sluggish, one of the slowestinternationally, attaining only subdued levels overthe past decade.3 With the worldwide volume ofbonds outstanding continuously experiencing robustgrowth, bond market growth is particularly strong incertain emerging economies, such as China orIndia. In contrast, the Swiss franc bond market hasexperienced one of the slowest growth rates inter-nationally (cf. chart 1).4

b)Dominance of private debt capital marketTotal market capitalisation of the Swiss franc

bond market reached a level of more than CHF 570billion by end-2010. This currently constitutesabout 115% of Swiss GDP, corresponding to theaverage size of an advanced economy’s bond mar-ket.5 In contrast to other advanced countries, how-ever, the Swiss private debt market is significantlylarger than its public counterpart. Over the past

five years, the volume of outstanding Swiss govern-ment bonds has been steadily decreasing relativeto the size of the economy. This reflects the soundfiscal policy pursued by Swiss federal and local gov-ernment authorities over an extended period of time.

c) Specific structure of Swiss franc bondmarket: market for foreign issuers is larger Foreign issuers hold a larger share of the Swiss

franc bond market than domestic ones. While, to a large extent, most countries’ bond markets con-sist of domestic debt securities, on the Swiss francmarket, the situation is different.6 Here, a greatershare of bonds is issued by foreign – as opposed todomestic – issuers.7 In terms of overall volume, themarket capitalisation of foreign issuers is alsolarger than that of domestic issuers, and this hasbeen the case for several years.8 For domestic bor-rowers, the market capitalisation of public issuers(Confederation, cantons and cities) has steadilydeclined.

In Switzerland, Pfandbriefe, which are similarto covered bonds in other countries, represent a keysegment of the Swiss franc domestic bond market,serving as a cost-efficient instrument with whichbanks can raise long-term funding. Pfandbriefe arestandardised fixed-rate debt securities, and collat-eralised by domestic mortgages. Currently, theyrepresent around one fifth of outstanding debtsecurities in Switzerland.9

Domestic issuer market capitalisation

Sovereign Regions, Cantons, CitiesMortgage institutes Banks InsurancesOther sectors

In CHF billions

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011Source: SIX Swiss Exchange Ltd

Foreign issuer market capitalisation

Countries Regions, local government, etc.Mortgage institutes Banks InsurancesOther sectors

In CHF billions

25

50

75

100

125

150

175

200

2006 2007 2008 2009 2010 2011Source: SIX Swiss Exchange Ltd

Chart 3 Chart 4

3 Note that, from a historical point of view, there is no Eurobondmarket in Swiss francs of a significant size. One main reason forthis, as suggested by Christensen (1986), is that the SNB discouraged the emergence of a Eurobond market in Swiss francs.Cf. B. V. Christensen (1986), Switzerland’s Role as an InternationalFinancial Center, IMF Occasional Paper No. 45 (International Monetary Fund, Washington, DC, 1986), p. 40. 4 Chart 1 shows the nominal growth of outstanding bonds in localcurrencies. The real growth of these markets shows a similar picture.

5 For an international comparison, cf. G. Debelle, The Australianbond market in 2011 and beyond, the Kanga News Australian DCMSummit, Sydney, 15 March 2011.6 In many advanced as well as emerging economies, the size of the domestic bond market far outweighs that of the foreign market. An exception to this is the sterling market, where, much like theSwiss franc market, the foreign market dominates.7 More precisely, the share of the Swiss franc in the internationalbond market currently stands at above 1%, while the share indomestic bonds reaches a meagre share of only 0.4% in globaloutstanding debt obligations.



As for the foreign sector, after an increase in2008/2009, market capitalisation of foreign bankingentities has remained steady. The market capitalisation of other sectors, including non-financialcorporations, increased markedly at the height ofthe financial and economic crisis in 2008 and 2009.

This section has reviewed some of the maincharacteristics of the Swiss franc bond market. Theyinclude slow growth compared to internationalbond markets, the domination of the public debtmarket by the private debt market and the largershare of foreign issuers than domestic ones. Fur-thermore, the majority of Swiss franc bonds aretraded on the SIX Swiss Exchange, while in othercountries, most trades are conducted as over-the-counter deals. The Swiss franc bond market is alsocharacterised by the above-average underlyingcredit quality of its issuers.

2 The Swiss franc bond market andthe financial crisisThe recent financial crisis has not led to major

changes in the Swiss franc primary capital market.In 2010, no major changes were recorded in overallSwiss franc bond issues compared to previous years.However, some striking differences can be observedwhen capital market borrowing by domestic issuersof Swiss franc bonds is compared to that of foreign

issuers. On the one hand, issuance by domestic bor-rowers did not collapse during the recent financialcrisis, indicating that no bond market closureoccurred in Switzerland (cf. section a). On the otherhand, there were no portfolio shifts by foreignissuers into this market either, as illustrated by thenegative level of net issuances by foreigners in2010. Thus, foreign financial flows into this market– possibly inducing higher foreign demand for theSwiss franc – did not occur (cf. section b below).Finally, there was no increased demand for Swissfranc bonds by international reserve managers.

a)No bond market closure in SwitzerlandCapital market borrowing by domestic issuers

in Switzerland was buoyant in 2010. Banking sectorissuances increased markedly, causing issuance vol-umes to more than triple. This occurred after levelshad been depressed subsequent to the outbreak ofthe global financial crisis in 2007. By contrast,industrial firms decreased their issuing activity in2010. However, this followed a very active year in2009. Despite the worst economic downturn indecades, industrial firms’ issuances were buoyant in 2009, showing that companies were in a positionto tap the Swiss domestic bond market on a continu -ous basis. More generally, however, capital markettapping by domestic industrial firms represents a limited proportion of this market, overall, reflect-ing the fact that the country’s corporate sector

Capital market borrowing by domestic issuers

Gross issuance Redemptions Net issuanceIn CHF billions

10

15

20

25

30

35

40

90 95 00 05 10Source: SNB

Chart 510

8 Swiss domestic market capitalisation attained a level of morethan CHF 260 billion by end-2010, while foreign issuers’ marketcapitalisation totalled CHF 310 billion. 9 In Switzerland, two institutions are authorised to issuePfandbriefe. Overall, the Swiss Pfandbrief market is characterised by comparatively strict legislation.10 SNB Bills are not included in chart 5.



does not rely heavily on bond financing (cf. table1). Much higher levels of primary market issuancesvia covered bonds (the Swiss Pfandbriefe) arenoticeable since 2007. These represent a relativelyin expensive way of refinancing for the banking sector, whose comparatively high levels of activityin this period correspond to the increasing totalmortgage amounts in Switzerland. The Confederationhas continued to maintain negative net overallissuance in recent years, thus further reducing thelevels of outstanding debt in Switzerland. This is inline with a further decline in the debt ratio for theentire state sector and the lowering of Swiss publicdebt levels. Overall, issuances by domestic borrow-ers reached CHF 38 billion in 2010, roughly 50%above the levels during the crisis period of2007–2009 and about one-third above pre-crisisaverages. Note that there is a negative relation-ship, in empirical terms, between the issuance vol-umes of domestic borrowers and economic activityin Switzerland. This indicates that, during recenteconomic downturns, Swiss domestic borrowershave increasingly been tapping the capital marketfor their financing needs, thereby taking advantageof a favourable interest rate environment.

The Confederation’s low rate of issuance activ-ity, which has reached negative net issuance levelsin recent years, is due to the healthy state of Swisspublic finances. In particular, the fiscal rule at thefederal level (the ‘debt brake’), which was firstapplied in the budget of 2003, has helped to mod -ify the budget process in a way that is compatiblewith the principles of debt stabilisation.12

While Switzerland experienced a steep rise inits debt ratio during the 1990s, this expansion offederal debt was halted in the early 2000s and itsdebt ratios were significantly reduced thereafter.The Swiss Confederation’s healthy finances helpedensure that levels of net issuance activity remainedclose to zero, or negative, which has been the casesince the mid-2000s in Switzerland. As a result, theSwiss public debt-to-GDP ratio has been decliningand stands at comparably low levels.

Since 2008, SNB Bills, which are interest-bearing debt certificates with maturities of up toone year, have been used to absorb liquidity, aspart of the SNB’s open market operations (cf. chart7).13 The issuance of the SNB’s debt obligationssince October 2008 has not led to a crowding out ofother debt instruments by the Swiss government, as

11 SNB Bills are not included in table 1. 12 The debt brake rule requires budgetary surpluses while the economy is booming, largely removing the need for substantialadjustments during a consecutive downturn and mitigating the problem of pro-cyclical policy. The rule is also sufficiently flexibleto handle exceptional situations. It has modified incentives withinthe budget process towards a better implementation of deficit anddebt objectives.13 SNB Bills may be issued publicly by auction or through privateplacement. They are included in the list of collateral eligible forSNB repos and may thus be used in SNB repo transactions. The firstSNB Bills auction was held in October 2008.

ConfederationGross issuance 11 518 3 471 4 682Net issuance 7 532 –3 330 –4 221

Mortage bond institutionsGross issuance 5 076 8 075 11 449Net issuance 818 2 096 5 417

IndustryGross issuance 1 028 3 128 1 831Net issuance 28 1 398 1 072

BanksGross issuance 4 737 3 993 9 392Net issuance –1 708 –2 638 2 929

OthersGross issuance 7 137 6 429 11 156Net issuance –1 659 809 5 436

Source: SNB

Issuance activity by domestic issuers of CHF bonds11 Table 1In CHF millions

2000–2006 2007–2009 2010Averages p.a.



there has been no significant decrease in demandfor Confederation-issued debt obligations or for theConfederation’s money market debt registersclaims.14 Starting in August 2011, the SNB – as a measure to expand significantly the supply of liq-uidity to the Swiss franc money market – repur-chased outstanding SNB Bills.

b)No portfolio shifts by foreigners intothe Swiss franc bond marketPatterns of capital market borrowing by for-

eign issuers paint a different picture whencompared to domestic borrowers. While, in 2009,international issuances reached record highs, 2010saw a significant drop in foreign borrowing, with a marked decrease in both gross and net issuances.For international issuers, the Swiss franc bond mar-ket is an integral component of their global fundingstrategy. In part, foreign issuers are attracted tothe market because it offers a low interest rateenvironment. In addition, the Swiss franc bondmarket provides the opportunity to diversify andstrengthen their investor base by opening up a market in a country well known for its politicaland economic stability. This notwithstanding, manyforeign issuers have no direct currency exposure tothe Swiss franc and swap their Swiss francs intotheir domestic currencies. In 2010, foreigners weregenerally less active on this market because of asharp decrease in net issuances of borrowers from

Net issuance activity and debt ratioby the Confederation

Net issuance Forecast Debt ratio (rhs)In CHF billions % of GDP

–5

–2.5

0

2.5

5

7.5

10

12.5

15

90 95 00 05 10

10

12.5

15

17.5

20

22.5

25

27.5

30

Source: The Federal Finance Administration (FFA), SNB

Chart 6

Debt obligations issued by the SNB

SNB-BillsIn CHF billions

20

40

60

80

100

120

2008 2009 2010 2011Source: SNB

Chart 7

14 For a more detailed analysis of Swiss Treasury auctions forConfederation bonds, cf. “Swiss government bonds: Thirty years’experience with uniform-price auctions”, by A. Ranaldo and E. Rossi, mimeo.

European UnionGross issuance 28 898 39 624 35 028Net issuance 10 022 15 981 3 718

US, CanadaGross issuance 7 137 10 396 2 743Net issuance 1 754 2 913 –5 161

OthersGross issuance 9 888 10 869 8 405Net issuance 1 137 1 860 1 406

Source: SNB

Capital market borrowing by foreign issuers of CHF bonds Table 2In CHF millions

2000–2006 2007–2009 2010Averages p.a.



the European Union and North America. One pos -sible explanation for this is the relatively highhedging costs of Swiss franc exposure. Overall,total issuance volumes by foreign borrowersamounted to CHF 46 billion in 2010, roughly 20%less than during the crisis period of 2007–2009,corresponding to pre-crisis levels.

c) No increased demand for Swiss francassets by international reserve managersThe previous two sections outlined the behav-

iour of borrowers in the Swiss franc bond market. Inthis section, the focus is on the demand for Swissfranc assets by international reserve managers. Inthis examination, the available data has shownthat the share of Swiss franc bonds in internationalreserves has not increased. Most of internationalreserve managers continue to hold only limitedreserve assets in Swiss currency. While the Swissfranc is among the ten most traded currencies inthe world,15 official foreign exchange holdings inSwiss francs continue to be fairly negligible. Thecurrency composition of global reserves shows thatclaims in Swiss francs represent a mere 0.10% ofglobal reserves, which currently corresponds to a nominal value of around CHF 9 billion. Totalreserve holdings continue to be largely dominatedby US dollars, whereas the euro has been able toexpand its relative position in recent years. Global-ly, official foreign exchange reserves continue to

grow at a significant rate, surpassing the USD 9 tril-lion level at the end of 2010. This is a continuationof a recent trend towards the accumulation of for-eign exchange reserves by emerging and developingeconomies, levels of which surpassed the USD 6trillion mark by end-2010. As a result, the reservesheld by these economies collectively amount totwice the level of those held by their counterpartsin the advanced economies.

ConclusionThe Swiss franc bond market fared well during

the financial crisis. Between 2008 and 2009, thismarket, which is average in size when compared tothose of other industrialised economies, experi-enced neither a temporary closure, nor a dearth ofcapital market borrowing by foreign issuers. For-eign central banks also do not seem to have alteredtheir investment strategy with respect to Swissfranc assets, keeping a continued low share ofreserves in Swiss francs. In conclusion, taking a general view of recent developments in the bondmarket, it is clear that the Swiss franc bond markethas maintained its reputation of stability, enablingit to sail through the recent crisis with comparativeease.

15 Cf. Bank for International Settlements (BIS), Triennial CentralBank Survey Foreign exchange and derivatives market activity, April2010.16 Source: IMF Statistics Department COFER database and International Financial Statistics. COFER is an IMF database thatkeeps end-of-period quarterly data on the currency composition ofofficial foreign exchange reserves. The currencies identified in COFERinclude the US dollar, euro, pound sterling, Japanese yen, Swiss

franc and other currencies. Foreign exchange reserves in COFER consist of the monetary authorities’ claims on non-residents in theform of foreign banknotes, bank deposits, treasury bills, short andlong-term government securities and other claims usable in theevent of balance of payments needs. COFER data are reported on avoluntary basis. At present, there are 139 reporters, consisting ofmember countries of the IMF, non-member countries/economies andother foreign exchange reserves holding entities.

Capital market borrowing by foreign issuers

Gross issuance Redemptions Net issuanceIn CHF billions

10

20

30

40

50

60

70

90 95 00 05 10Source: SNB

Chart 8Official foreign exchange reserves

As % of total world allocated reserves

USD (lhs) EUR (lhs) GBP JPY CHF Other currencies% %

20

30

40

50

60

70

80

99 00 01 02 03 04 05 06 07 08 09 10 11

1

2

3

4

5

6

7

Sources: International Monetary Fund (IMF), SNB

Chart 916




SN

Chronicle of monetary events

The chronicle summarises the most recent monetary events. For events dating further back, please refer to SNB press releases and the Annual Report at www.snb.ch.




September 2011 The SNB decides, in coordination with the Bank of England, theBank of Japan, the European Central Bank and the Federal Reserve, tooffer US dollar liquidity with a term of 84 days to cover the end of theyear. These tenders will be conducted in addition to the 7-day oper -ations. The first 84-day US-dollar liquidity operation will be carried outon 12 October 2011.

At its quarterly assessment of 15 September, the SNB affirms thatit will enforce the minimum exchange rate of CHF 1.20 per euro set on6 September with the utmost determination. It is prepared to buy for -eign currency in unlimited quantities. It continues to aim for a three -month Libor at zero and will maintain total sight deposits at the SNB atsignificantly above CHF 200 billion.

On 6 September, the SNB announces that it will no longer toleratea EUR/CHF exchange rate below the minimum rate of CHF 1.20. It willenforce this minimum rate with the utmost determination and is pre-pared to buy foreign currency in unlimited quantities. In addition, theSNB emphasises that, even at a rate of CHF 1.20 per euro, the Swissfranc is still high and should continue to weaken over time. If the eco nomic outlook and deflation risks make this necessary, the SNB willtake further measures.

August 2011 On 17 August, the SNB announces that it will again significantlyincrease the supply of liquidity to the Swiss franc money market. Withimmediate effect, it aims to expand banks’ sight deposits at the SNBfurther, from CHF 120 billion to CHF 200 billion. In addition, the SNBwill repurchase outstanding SNB Bills and employ foreign exchangeswaps.

On 10 August, the SNB announces that it will again significantlyincrease the supply of liquidity to the Swiss franc money market. Itaims to rapidly expand banks’ sight deposits at the SNB from CHF 80billion to CHF 120 billion. To accelerate the increase in Swiss franc liquidity, the SNB will additionally conduct foreign exchange swaptransactions.

On 3 August, the SNB announces that, effective immediately, it isaiming for a three-month Libor as close to zero as possible and is narrowing the target range for the three-month Libor from 0.0–0.75%to 0.0–0.25%. Furthermore, it intends to expand banks’ sight depositsat the SNB from currently around CHF 30 billion to CHF 80 billion. Withimmediate effect, the SNB will no longer renew repos and SNB Bills thatfall due and will repurchase outstanding SNB Bills. In addition, the SNBpoints out that the Swiss franc is massively overvalued and is thereforethreatening the development of the economy and increasing the down -side risks to price stability.

June 2011 At its quarterly assessment of 16 June, the SNB decides to main -tain its expansionary monetary policy. The target range for the three -month Libor remains unchanged at 0.0–0.75%, and the SNB intends tokeep the Libor within the lower part of the target range at around0.25%. For 2011, the SNB is maintaining its forecast of real GDP growthof around 2%. The conditional inflation forecast shows that the expan -sionary monetary policy cannot be maintained over the entire forecasthorizon without compromising price stability in the long term.


DesignWeiersmüller Bosshard Grüninger WBG, Zurich

Typeset and printed byNeidhart + Schön AG, Zurich

Language versionsThe Quarterly Bulletin is available in printed form in German (ISSN 1423–3789) and French (ISSN 1423–3797).

The Quarterly Bulletin can also be downloaded from the SNB website in the following language versions:English: www.snb.ch, Publications, Quarterly Bulletin (ISSN 1662–257X)German:www.snb.ch, Publikationen, Quartalsheft (ISSN 1662–2588)French:www.snb.ch, Publications, Bulletin trimestriel (ISSN 1662–2596)

Websitewww.snb.ch

Published bySwiss National BankEconomic AffairsBörsenstrasse 15P.O. BoxCH-8022 Zurich

Copyright ©The Swiss National Bank (SNB) respects all third-party rights, in particular rights relating to works protected by copyright(information or data, wordings and depictions, to the extentthat these are of an individual character).

SNB publications containing a reference to a copyright (© SwissNational Bank/SNB, Zurich/year, or similar) may, under copyrightlaw, only be used (reproduced, used via the internet, etc.) for non-commercial purposes and provided that the source ismentioned. Their use for commercial purposes is only permittedwith the prior express consent of the SNB.

General information and data published without reference to a copyright may be used without mentioning the source.

To the extent that the information and data clearly derive fromoutside sources, the users of such information and data areobliged to respect any existing copyrights and to obtain theright of use from the relevant outside source themselves.

Limitation of liability The SNB accepts no responsibility for any information it provides.Under no circumstances will it accept any liability for losses

or damage which may result from the use of such information. This limitation of liability applies, in particular, to the topicality,accuracy, validity and availability of the information.

© Swiss National Bank, Zurich/Berne 2011


Date post:	10-Sep-2014
Category:	Documents
Upload:	thoreau
View:	320 times
Download:	2 times

SNB 3Q.en

Documents