On March 13, the Governing Council of the European Central Bank (ECB) decided on changes to the operational framework for implementing monetary policy. These changes will affect how central bank liquidity will be provided as excess liquidity in the banking system, while remaining significant over the coming years, gradually declines. The Governing Council agreed on the following set of key parameters and features for its operational framework:
The Governing Council will continue to steer the monetary policy stance through the deposit facility rate (DFR).
The Eurosystem will provide liquidity through a broad mix of instruments, including short-term credit operations (i.e. main refinancing operations (MROs)) and three-month longer-term refinancing operations (LTROs) as well as – at a later stage – structural longer-term credit operations and a structural portfolio of securities.
MROs will continue to be conducted through fixed-rate tender procedures with full allotment. They are intended to play a central role in meeting banks’ liquidity needs and their use by counterparties is an integral part of a smooth implementation of monetary policy.
The three-month LTROs will also continue to be conducted through fixed-rate tender procedures with full allotment.
In addition, the rate on the MROs will be adjusted such that the spread between the rate on the MROs and the DFR will be reduced to 15 basis points from the current spread of 50 basis points. The rate on the marginal lending facility (MLF) will also be adjusted such that the spread between the rate on the MLF and the rate on the MROs will remain unchanged at 25 basis points. These changes will come into effect with the sixth maintenance period of 2024, which begins on September 18.
New structural longer-term refinancing operations and a structural portfolio of securities will be introduced at a later stage, once the Eurosystem balance sheet begins to grow durably again, taking into account legacy bond holdings.
Also, the reserve ratio for determining banks’ minimum reserve requirements remains unchanged at 1%. The remuneration of minimum reserves remains unchanged at 0%.
Moreover, a broad collateral framework will be maintained for refinancing operations.
These decisions are based on a set of principles which the Governing Council had agreed on that will guide monetary policy implementation in the future.
The Governing Council will review the key parameters of the operational framework in 2026 and stands ready to adjust the design and parameters of the framework earlier, if necessary, to ensure that the implementation of monetary policy remains in line with the established principles. An in-depth analysis of the design of the new longer-term refinancing operations and the new structural portfolio will also be conducted.
ECB monetary operations
On March 11, the ECB announced the seven-day MRO. The operation was conducted on March 12 and attracted bids from euro area eligible counterparties of €2,375 million, €1,196 million less than the previous week. The amount was allotted in full at a fixed rate equivalent to the prevailing MRO rate of 4.50%, in accordance with current ECB policy.
On March 13, the ECB conducted a seven-day US dollar funding operation through collateralised lending in conjunction with the US Federal Reserve. This operation attracted bids of $173 million, which were allotted in full at a fixed rate of 5.58%.
During the week under review, participants in the third series of targeted longer-term refinancing operations eight to 10 had the option of terminating or reducing their outstanding amount before maturity. Accordingly, on March 27, a total of €35,844.39 million will be repaid.
Domestic Treasury bill market
In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day bill for settlement value March 14, maturing on June 13. Bids of €77.88 million were submitted for the 91-day bills, with the Treasury accepting €14.55 million. Since €55.17 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €40.61 million, standing at €543.38 million.
The yield from the 91-day bill auction was 2.941%, decreasing by 12.20 basis points from bids with a similar tenor issued on March 7, representing a bid price of €99.2621 per €100 nominal.
During this week, there was no trading on the Malta Stock Exchange. Yesterday, the Treasury invited tenders for 91-day and 182-day bills maturing on June 20 and September 19, respectively.
The report is prepared by the Monetary Operations and Collateral Management Office of the Central Bank of Malta.