The results of the second main refinancing operation of the Eurosystem and information regarding the first longer-term refinancing operations
The second main refinancing operation
On 11 January 1999 the Eurosystem announced its second main refinancing operation, which was successfully completed today. The operation, which was conducted by means of reverse transactions at a fixed rate of 3%, has a duration of 14 days, from 13 to 27 January 1999. A total of 1068 banks participated in the operation and submitted bids to the national central banks for an amount of EUR 563 billion. The total amount of liquidity allocated to the banking system amounted to EUR 48 billion, thus resulting in an allotment quota of 8.52%.
The maturing on 13 January 1999 of approximately EUR 66 billion of liquidity-providing monetary policy operations that were conducted by national central banks in Stage Two of Economic and Monetary Union (EMU) was taken into account by the Eurosystem when reaching the allotment decision. The fact that the maturing operations are only partially substituted by the second main refinancing operation takes also into account the volume to be allotted on 13 January 1999 in the first longer-term refinancing operations (see below).
The allotment decision was taken on the basis of an analysis of the liquidity conditions in the euro area as a whole, while paying due attention to the uncertainties connected with the phasing-in of the new system. The decision aims at allowing the credit institutions (on aggregate) to follow a smooth path in fulfilling their minimum reserve requirements over the first maintainance period which extends from 1 January 1999 to 23 February 1999.
It can be anticipated that, owing to the phasing-in of the Eurosystem's different refinancing operations, the daily aggregate current account holdings of credit institutions on 13 January 1999 will be below the daily average reserve holdings required to meet the estimated reserve requirement of the first maintenance period. The effect of this one daily shortfall in relation to the required daily average will be compensated by the additional liquidity provided through the first longer-term refinancing operation on 14 January 1999.
The definitive figure for the aggregate reserve requirement of credit institutions in the euro area will not become available until early February. In order to provide some guidance to the market, on 4 January 1999 the Eurosystem published its estimate of around EUR 100 billion for the aggregate reserve requirement for the first maintenance period. On the basis of the information currently available, it appears likely at present that the definitive figure might be slightly below this estimate, rather than above it.
The first longer-term refinancing operations
The first longer-term refinancing operation will be announced on 12 January 1999 and will be settled on 14 January 1999.
As specified in the ESCB publication entitled "The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures", dated September 1998, "the longer-term refinancing operations are liquidity-providing reverse transactions with a monthly frequency and a maturity of three months. These operations aim to provide counterparties with additional longer-term refinancing and are executed by the national central banks on the basis of standard tenders. In these operations, the ESCB does not, as a rule, intend to send signals to the market and therefore normally acts as a rate taker." The General Documentation also specifies that "from time to time, the ECB indicates the operation volume to be allotted in forthcoming" longer-term refinancing operations.
As announced by the Governing Council of the ECB on 22 December 1998, the first longer-term refinancing operations will be conducted by means of variable rate tenders, using the single rate (i.e. Dutch) auction procedure. The phasing-in of the longer-term refinancing operations requires the Eurosystem to conduct parallel tenders with three different maturities (25 February 1999, 25 March 1999 and 29 April 1999). The ECB intends to allot an amount of EUR 15 billion in each of the parallel tenders. The total amount that the ECB intends to allot in these three operations is thus EUR 45 billion. (This compares with EUR 25 billion of liquidity-providing operations conducted by national central banks in Stage Two which mature on the settlement day of this first longer-term refinancing operation.)
It should be noted that, in order to allow sufficient time in which to process these three parallel operations, the announcement of the tender results will take place at 1.15 p.m. ECB time (C.E.T.) on 13 January 1999, instead of at 11.15 a.m., which is the announcement time foreseen for the results of all other regular tender operations of the Eurosystem.
As regards the subsequent longer-term refinancing operations in the first three months of 1999, the amount the ECB intends to allot will also be EUR 15 billion per operation.