Liquidity conditions and monetary policy operations in the period from 17 April to 30 July 2019

Prepared by Annette Kamps and Christian Lizarazo

Published as part of the ECB Economic Bulletin, Issue 6/2019.

This box describes the Eurosystem liquidity conditions and the ECB’s monetary policy operations during the third and fourth reserve maintenance periods of 2019, which ran from 17 April to 11 June 2019 and from 12 June to 30 July 2019, respectively. Throughout this period the interest rates on the main refinancing operations (MROs), the marginal lending facility and the deposit facility remained unchanged at 0.00%, 0.25% and -0.40% respectively. In parallel, the Eurosystem continued the reinvestment phase of its asset purchase programme (APP), reinvesting principal payments from maturing public sector securities, covered bonds, asset-backed securities and corporate sector securities.

Liquidity needs

In the period under review, the average aggregate daily liquidity needs of the banking system, defined as the sum of net autonomous factors and reserve requirements, stood at €1,511.3 billion, an increase of €14.9 billion compared with the previous review period (i.e. the first and second reserve maintenance periods of 2019) (Table A). This slight increase in liquidity needs was largely the result of an increase in net autonomous factors, which increased by €13.0 billion to €1,381.3 billion during the review period.

The increase in net autonomous factors was due to an increase in liquidity-absorbing factors, which more than offset the growth in liquidity-providing factors. Liquidity-absorbing factors increased primarily due to “Other autonomous factors”, which grew on average by €28.2 billion to €788.7 billion, and banknotes in circulation, which grew on average by €21.8 billion to €1,234.1 billion. Government deposits, which can exhibit seasonal volatility, remained broadly unchanged at €270.5 billion (up by €7.2 billion) on average over the period under review. Among liquidity-providing factors, net assets denominated in euro increased on average by €16.3 billion to €213.0 billion compared to the previous review period, during which a seasonal pattern at year-end led to a stronger increase. Liquidity-providing factors also increased thanks to a higher value of net foreign assets, which grew on average by €27.9 billion, similar to the previous review period.

Table A

Eurosystem liquidity conditions

Liabilities – liquidity needs

(averages; EUR billions)

Assets – liquidity supply

(averages; EUR billions)

Other liquidity-based information

(averages; EUR billions)

Interest rate developments

(averages; percentages)

Source: ECB.
Notes: All figures in the table are rounded to the nearest €0.1 billion. Figures in brackets denote the change from the previous review or maintenance period.
1) “Minimum reserve requirements” is a memo item that does not appear on the Eurosystem balance sheet and therefore should not be included in the calculation of total liabilities.
2) The overall value of autonomous factors also includes “items in course of settlement”.

Liquidity provided through monetary policy instruments

The average amount of liquidity provided through open market operations – including both tender operations and monetary policy portfolios – decreased by €27.9 billion to €3,341.2 billion (see Chart A). This decrease was driven by lower demand in tender operations as well as a smaller liquidity injection stemming from monetary policy portfolios, which was due to redemptions of securities purchased under the securities markets programme and a small decline in the book value of the assets acquired in the public sector purchase programme (PSPP). Limited temporary deviations in the overall size and composition of the APP may occur during the reinvestment phase for operational reasons.

Chart A

Evolution of liquidity provided through open market operations and excess liquidity

(EUR billions)

Source: ECB.

The average amount of liquidity provided through tender operations declined slightly over the review period, by €12.6 billion to €715.1 billion. This decrease was mainly attributable to lower liquidity provided through targeted longer-term refinancing operations (TLTROs), which decreased on average by €11.2 billion as a result of voluntary early repayments. Lower demand by counterparties led to a decline in the provision of liquidity via MROs and via three-month longer-term refinancing operations (LTROs), falling by €0.8 billion to €5.1 billion on average and by €0.7 billion to €3.3 billion on average, respectively.

Liquidity provided through the Eurosystem’s monetary policy portfolios decreased by €15.4 billion to €2,625.9 billion on average, owing to redemptions of bonds held under the securities market programme and a small decline in the PSPP. Redemptions of bonds held under the securities markets programme and the first two covered bond purchase programmes totalled €5.4 billion. Regarding the APP portfolios, since 1 January 2019 the programme has been in the reinvestment phase. Limited temporary deviations in the overall size and composition of the APP may occur during the reinvestment phase for operational reasons.[1] The PSPP declined slightly over the review period by €9.2 billion to €2,092.4 billion on average.

Excess liquidity

As a consequence of the developments detailed above, average excess liquidity declined compared with the previous review period, by €42.9 billion to €1,829.6 billion (see Chart A). This decline reflects higher net autonomous factors and lower liquidity provided through the Eurosystem’s tender operations and monetary policy portfolios. Regarding the allocation of excess liquidity holdings between current accounts and the deposit facility, average current account holdings increased marginally, by €1.2 billion to €1,372.5 billion, while average recourse to the deposit facility declined by €42.0 billion to €587.4 billion.

Interest rate developments

Overnight unsecured and secured money market rates for general collateral remained close to the ECB deposit facility rate. In the unsecured market, the euro overnight index average (EONIA) averaged -0.363%, unchanged from the previous review period. It fluctuated between a low of -0.379%, observed on 19 June, and a high of -0.252%, observed on 7 June, ahead of the Whit Monday holiday on 10 June. The increase in the rate coincided with a noticeable drop in the volume by almost €800 million to €611 million between Thursday, 6 June and Friday, 7 June. Anecdotally, EONIA panel banks have historically shown a tendency to move from overnight into two or three-day maturities in order to bridge long weekends. As a result, the EONIA volume tends to decline abruptly on such days. Regarding the secured money market, the spread between the average overnight repo rates for the standard and the extended collateral basket in the general collateral pooling market[2] widened marginally. Compared with the previous review period, the average overnight repo rate for the standard collateral basket increased by 0.6 basis point to -0.419%, while the average overnight repo rate for the extended collateral basket increased by 1.1 basis point to -0.397%.

[1]See the article entitled “Taking stock of the Eurosystem’s asset purchase programme after the end of net asset purchases, Economic Bulletin, Issue 2, ECB, 2019.
[2]The GC Pooling market allows repurchase agreements to be traded on the Eurex platform against standardised baskets of collateral.
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