As announced on Thursday 7 March by the President of the European Central Bank (ECB), Christine Lagarde (see EUROPE 13367/21), the ECB Governing Council finalised the revision of the operational framework for steering short-term money market rates at its virtual non-monetary policy meeting on Wednesday 13 March.
This review exercise was announced as early as 15 December 2022 in order, according to the ECB, to ensure that the framework remains appropriate in a context where the excess liquidity gradually declines, but where - as the ECB acknowledges - this excess will remain significant.
The Governing Council agreed on certain principles to guide monetary policy implementation: effectiveness, robustness, flexibility, efficiency and an open market economy. Monetary policy itself remains guided by the ECB’s monetary policy strategy.
Furthermore, the Governing Council stresses that the operational framework should facilitate the ECB’s pursuit of its secondary objective of supporting the EU’s general economic policies, in particular the green transition, as has been recalled on several occasions, without prejudice to its primary objective of price stability (see EUROPE 13339/20, 13358/14).
In line with these principles, the Governing Council agreed on key parameters for the implementation of monetary policy and the provision of liquidity in the euro area.
It intends to continue to steer the monetary policy stance through the deposit facility interest rate (DFR).
One of the main announcements is the reduction of the rate corridor. From 18 September, for the sixth reserve maintenance period of 2024, the spread between the rate on the main refinancing operations (MROs) and the deposit facility rate will be reduced to 15 basis points in order to limit the volatility in short-term money market rates and encourage banks to turn to the markets to seek funding solutions.
The ECB highlights that the rate on the marginal lending facility (MLF) will also be adjusted such that the spread with the rate on the main refinancing operations remains unchanged at 25 basis points.
Another announcement concerns the maintenance of the reserve ratio for determining banks' reserve requirements at 1%.
Some actors, in particular 13 MEPs and economists brought together by the NGO Positive Money Europe, would have liked to see a reform of the reserve requirements for commercial banks in the euro area, and in particular an increase in this ratio (see EUROPE 13335/30).
The remuneration of minimum reserves remains unchanged at 0% (see EUROPE 13231/2).
However, the Eurosystem intends to continue providing banks with liquidity through a broad mix of instruments (including short-term and longer-term credit operations) with a maturity of 3 months.
In addition, the Governing Council decided that new structural longer-term refinancing operations and a structural portfolio of securities will be introduced “once the Eurosystem balance sheet begins to grow durably again on a sustainable basis, taking into account legacy bond holdings”.
The ECB does not provide further details on the operations and this portfolio, except to say that their contribution to covering liquidity needs will be “significant” and that these instruments will be calibrated in accordance with the principles set out in the new operational framework and to avoid interference with the monetary policy stance.
Finally, the ECB is announcing a review of the key parameters of the framework in 2026, or earlier if necessary.
Link to the statement by the Governing Council: https://aeur.eu/f/bar (Original version in French by Émilie Vanderhulst)