Measures to improve the efficiency of the operational framework for monetary policy
The Governing Council of the ECB has decided to implement the following two measures to improve the operational framework for monetary policy:
- The timing of the reserve maintenance period will be changed so that it will always start on the settlement day of the main refinancing operation (MRO) following the Governing Council meeting at which the monthly assessment of the monetary policy stance is pre-scheduled.* Furthermore, as a rule, the implementation of changes to the standing facility rates will be aligned with the start of the new reserve maintenance period.
- The maturity of the MROs will be shortened from two weeks to one week.
The combination of the two measures will help remove expectations of interest rate changes during any particular maintenance period, given that changes in the ECB's key interest rates will only apply, in general, to the forthcoming reserve maintenance period and that liquidity conditions will no longer spill over from one reserve maintenance period to the next. Hence, the measures will contribute to stabilising the conditions in which bidding in the MROs takes place. They will also ensure that the reserve maintenance period always starts on a TARGET operating day, while ending on a non-TARGET day will be very rare.
Given the preparatory work required for the implementation of these measures, they are scheduled to come into effect during the first quarter of 2004. The reserve maintenance period calendar will be published at least three months in advance. Under the new system, the gap between the date on which the reserve base is calculated, i.e. the last day of a month, and the start of the reserve maintenance period will be at least as long as it is at present. For instance, a credit institution's reserve requirement for a maintenance period starting in April would be calculated using its reserve base data from end of February.
On 7 October 2002 the Eurosystem launched a public consultation to gather the views of market participants on a set of planned technical measures designed to improve the efficiency of the operational framework for monetary policy. Besides the two measures now decided, market participants' views were also requested regarding the possible suspension of the longer-term refinancing operations (LTROs). Since these operations appear to continue to serve the liquidity management needs of the Eurosystem's counterparties, the Governing Council of the ECB decided not to suspend them.
The Eurosystem received a strong response to this public consultation, highly representative of the euro area banking community, in terms of both geographical location and institution size. Comments were received from 17 banking and financial market associations (five pan-European associations and 12 national associations representing eight countries). There were also 42 replies from individual credit institutions, including both large EONIA panel banks and small institutions. On the whole, the public consultation was received very favourably by market participants and it produced valuable additional input with regard to the planned changes.
A summary of the comments received is available in the public consultation sections of the ECB's and the national central banks' websites.
* On 8 November 2001 it was announced that the Governing Council of the ECB would assess its monetary policy stance, as a rule, only at its first meeting of each month. The exact schedule of the monthly meetings is published by the ECB around mid-year for the following year.