Brussels, 14/02/2005 (Agence Europe) - In its February issue, the monthly magazine of the European Central Bank (ECB) provided an assessment of the changes to Eurosystem's operational framework as part of its effort to implement monetary policy. Under the old system, credit institutions experienced changes in the cost of obtaining liquidity during a reserve maintenance period as a result of a decision by the ECB on interest rates. Speculation by credit institutions on rates was often due to ther erratic behaviour, which led them to make offers that prevented the ECB from allotting the liquidity it wanted to. In March 2004, Eurosystem made two changes to stabilise the behaviour of actions in the main refinancing operations. This involved neutralising the impact of interest rate change speculation within a reserve period. These periods were aligned to the start of the maintenance period and the implementation of interest rate decisions. They now begin the day the governing council of the ECB makes its decision on interest rates and end the month following the day preceding the decision on interest rates. Beforehand they were set on a fixed date basis. In the same way, opportunities for carrying out refinancing operations have been reduced from two weeks to one week, in an effort to prevent final operations of this kind being affected by speculation if there was the chance of reduced rates in the following period of reserve maintenance periods.
According to the ECB bulletin, the main objective of “immunising” the behaviour of speculative bids on exchange rates during reserve maintenance periods has been reached. The ECB points out that the transition was done in a “softly softly” way and that the institutions have rapidly adapted to the higher amounts of liquidity allotted in a single week. Nonetheless, the ECB acknowledges that since implementation of the new operational framework, the ECB has not changed its intervention rates and that there has been little speculation on interest rate changes. Therefore, a definitive evaluation of the impact of the current framework is not yet possible and the strengthened communication policy of the ECB has also contributed to this stability.
Two other articles published in the ECB bulletin deals with the issue of transparency on the banking markets and in the Balance of Payments (BOP), as well as the International Investment Positions (IIP) of euro zone Member States to third countries. In the latter article, the high level of financial flows to the United Kingdom, Switzerland and the USA is highlighted.