An upswing in Switzerland depends on a recovery abroad. In the recent past, the prospects for such a recovery have improved. Nevertheless, it is still necessary to be cautious. So far, the indicators are anything but conclusive. In Switzerland, there is as yet little evidence of an improvement in the situation. In the second quarter, economic activity is likely to have declined further. We are expecting a stabilisation in the current quarter and a slight recovery in the fourth quarter at the earliest, though probably not before spring 2004. Optimistic signals are emanating from the international financial markets. The equity markets began to pick up in March already. Since June, yields on the capital markets have also been moving up.

The markets have clearly understood that, given the depressed economic situation, we would not allow the Swiss franc to appreciate to an extent that would lead to an undesirable tightening of monetary conditions. A tightening of monetary conditions, i.e. an increase in the cumulation of interest rates and the revaluation rate, is undesirable in particular for as long as no threat of inflation is discernible.

Aside from the euro, the loss in value of the US dollar was a cause for concern. We understand the problems brought about by the decline of the dollar. At the same time, we are adhering to the system of flexible exchange rates. The foreign exchange markets certainly tend to exaggerate. This poses a problem particularly when the price development heads in a direction undesirable from a monetary policy point of view. In such a situation, monetary policy must take countermeasures. A monetary policy which, by contrast, were to take a direct influence on exchange rate steering, would take into account inappropriate risks and side effects.

The National Bank will continue implementing its present policy. The stability-oriented regulation of monetary conditions is a balancing act. The goal must be to ensure price stability while paying due heed to the needs of the economy as a whole. Reaction to external disruptions must be appropriate, and the long-term view should be never to lose sight of the risks and side effects.