Four times a year – in March, June, September and December – the National Bank’s Governing Board conducts a regular assessment of the monetary policy situation. Each of these assessments results in an interest rate decision. In certain situations, interest rate changes are also effected between the regular assessments. In the past year, however, this was not the case.
At the quarterly assessment in December 2003, the National Bank assumed that the Swiss economy would see increasingly broad-based growth of 1.5-2% in 2004. On the assumption that the three-month Libor would remain constant at 0.25% for the next three years, it forecast annual average inflation rates of 0.4% for 2004, 1.0% for 2005 and 2.3% for 2006. While pointing out that the economic upswing was not yet a fact, the Governing Board left the target range for the three-month Libor unchanged at 0.0-0.75%, with a targeted rate of 0.25%. As the closure of the output gap, which had been negative since mid-2001, approached, however, inflationary pressure was expected to increase as of mid-2005. It became clear that the extremely expansionary monetary policy pursued in the preceding two years would have to be gradually corrected. For the time being, however, the interest rate range was left unchanged.
