PRESS RELEASE

Decisions on ECB interest rates

21 January 1999

At today's meeting, the Governing Council of the ECB reviewed the monetary, financial and economic situation in the euro area against the background of its stability-oriented monetary policy strategy. Taking into account the latest economic developments, the Governing Council confirmed its earlier assessment of the outlook for price stability. The Governing Council therefore decided that for the two main refinancing operations to be settled on 27 January and 3 February 1999 the same conditions will apply as for the three main refinancing operations settled earlier this month, i.e. they will be fixed rate tenders conducted at an interest rate of 3.0%.

In addition, the Governing Council discussed the interest rates on its two standing facilities. It recalled that it had set the interest rate on the marginal lending facility at 4.5% and the interest rate on the deposit facility at 2% at the start of Stage Three, i.e. 1 January 1999. However, as a transitional measure the marginal lending rate and the deposit rate were set at a level of 3.25% and 2.75%, respectively, for the period from 4 to 21 January 1999. The purpose of the narrow corridor thus established by the interest rates on the standing facilities was to facilitate the transition by market participants to the integrated euro money market during the initial days of Monetary Union.

At today's meeting, the Governing Council reviewed the experience with the functioning of the euro area-wide money market since the beginning of the year. It noted that difficulties of some market participants with the functioning of the area-wide money market and, in particular, with the cross-border flow of liquidity, have diminished substantially over time. As a consequence, overall, the integration of the euro area money market has therefore reached a satisfactory state only three weeks after its creation. Against this background, the Governing Council did not see a need for continuing the application of the narrow interest rate corridor beyond the date of 21 January 1999, noting that an extended use of a narrow corridor would be likely to hamper the development of an efficiently functioning money market in the euro area in the longer term. Thus, the Governing Council decided today to revert to the interest rates on the Eurosystem's two standing facilities which it had set for the start of Stage Three, i.e. it set the interest rate for the marginal lending facility at a level of 4.5% and the interest rate for the deposit facility at a level of 2% with effect from 22 January 1999.

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