Over the past few years, the growth of credit volumes has been significant, with the result that credit volumes relative to gross domestic product (GDP) have reached new historical peaks in Switzerland. Together with persistently increasing real estate prices, this spells out conditions that may lead to subsequent financial instability. How can we understand these recent developments in credit volumes? And can this understanding form a basis for predicting the likely future evolution of this variable in Switzerland?

Last year, the deterioration in the euro crisis prompted a flight from the euro to other currencies. At certain times, it also resulted in a very substantial demand for Swiss francs. To meet this demand and thereby enforce the minimum exchange rate, the Swiss National Bank (SNB) has created a lot of permanent liquidity through foreign currency purchases. Consequently, the SNB has not concluded any more transactions with temporary liquidity since mid-2012. The exceptionally low level of interest rates is an additional factor in the slowdown of activity on the money market.

For almost 18 months now, the Swiss National Bank (SNB) has been enforcing the minimum exchange rate of CHF 1.20 per euro with the utmost determination. The need for this measure is widely recognised, both domestically and abroad, due to the substantial appreciation of the Swiss franc in summer 2011. At the same time, however, there are isolated voices claiming that given the large current account surplus, the Swiss franc is too weak, and that the SNB should allow the currency to appreciate in order to contribute towards reducing global imbalances.