On March 16, the Governing Council of the European Central Bank decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the two per cent medium-term target.
Accordingly, the interest rate on the main refinancing operations (MRO) and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50 per cent, 3.75 per cent and three per cent respectively, with effect from March 22.
The Asset Purchase Programme portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time.
As concerns the pandemic emergency purchase programme (PEPP), the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.
As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations (TLTROs), the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance.
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its two per cent target over the medium term and to preserve the smooth functioning of monetary policy transmission. The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed.
Moreover, the transmission protection instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.
ECB monetary operations
On March 13, the ECB announced the seven-day MRO. The operation was conducted on March 14 and attracted bids from euro area eligible counterparties of €977 million, €126 million more than the previous week. The amount was allotted in full at a fixed rate equivalent to the prevailing MRO rate of three per cent, in accordance with current ECB policy.
On March 15, the ECB conducted the seven-day US dollar funding operation through collateralised lending in conjunction with the US Federal Reserve.
This operation attracted bids of $469.50 million, which was allotted in full at a fixed rate of 4.85 per cent.
During the week under review, participants in the TLTRO-III operations four to 10 had the option of terminating or reducing their outstanding amount before maturity. Accordingly, on March 29, a total of €87,730.41 million will be repaid.
Domestic Treasury bill market
In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day and 182-day bills for settlement value March 16, on June 15 and September 14, respectively. Bids of €213.51 million were submitted for the 91-day bills, with the Treasury accepting €27.51 million, while bids of €20.50 million were submitted for the 182-day bills, with the Treasury accepting €6.70 million. Since €84.45 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €50.24 million, standing at €817.73 million.
The yield from the 91-day bill auction was 2.847 per cent, increasing by 5.60 basis points from bids with a similar tenor issued on March 9, representing a bid price of €99.2855 per €100 nominal. The yield from the 182-day bill auction was 2.917 per cent, decreasing by 0.40 basis point from bids with a similar tenor also issued on March 9, representing a bid price of €98.5467 per €100 nominal.
During this week, there was no trading on the Malta Stock Exchange.
Today, March 21, the Treasury will invite tenders for 91-day and 364-day bills maturing on June 22, 2023, and March 21, 2024, respectively.
The report is prepared by the Monetary Operations and Collateral Management Office of the Central Bank of Malta.