Switch to variable rate tenders in main refinancing operations: some technical details

16 June 2000

At its meeting on 8 June 2000 the Governing Council of the ECB decided that, starting from the operation to be settled on 28 June 2000, the main refinancing operations of the Eurosystem will be conducted as variable rate tenders, using the multiple rate auction procedure. Furthermore, the Governing Council decided to set a minimum bid rate of 4.25% for these operations. As was clarified when the decision was communicated following the meeting of the Governing Council, the switch to variable rate tenders in the main refinancing operations is not intended as a further change in the monetary policy stance of the Eurosystem. The new tender mechanism is a response to the severe overbidding which has developed in the context of the current fixed rate tender procedure. For the purpose of signalling the monetary policy stance, the minimum bid rate is designed to play the role performed, until now, by the rate in fixed rate tenders.

The main features of the variable rate tender procedure in main refinancing operations are as follows:

  • The timetable for the tender announcement, the allotment decision and the announcement of the results will be the same as that for a main refinancing operation conducted as a fixed rate tender.

  • The tender will be conducted as a multiple rate ("American") auction, i.e. an auction at which the allotment interest rate equals the interest rate offered in each individual bid. This is the same as the type of auction applied since March 1999 in the longer-term refinancing operations.

  • The tender announcement will include, in addition to the standard information, the minimum bid rate and an indication of the expected liquidity needs of the banking system.

This indication refers to an average for the period from the day of announcement until (and including) the day before the settlement of the following main refinancing operation. If this time interval goes beyond the end of a reserve maintenance period, an estimate of the average liquidity needs until the end of the reserve maintenance period will also be provided. An estimate of the liquidity needs of the banking system is necessarily surrounded by a significant degree of uncertainty. The ECB provides its estimates to the best of its knowledge at the time of publication, drawing from the information provided by national central banks. It should also be stressed that the ECB bases its allotment decisions on a number of factors, including, but not limited to, the expected liquidity needs of the banking system.

The liquidity needs are defined as the average, over the relevant period, of the daily sum of reserve requirements and of all factors other than monetary policy operations of the Eurosystem which affect the banking system's liquidity (the so-called autonomous factors, e.g. banknotes and government deposits with the Eurosystem; see the box in each issue of the ECB Monthly Bulletin entitled "Monetary policy operations and liquidity conditions in the reserve maintenance period ending on ...", for instance pages 18 to 19 in the June 2000 issue). The ECB pages providing daily information on liquidity conditions will display ex post data on liquidity factors other than monetary policy operations, to allow counterparties easily to assess the deviation of actual figures from the published estimates.

  • The announcement of the tender results will include the total amount allotted, the minimum bid rate, the marginal interest rate, the weighted average allotment rate and the percentage of allotment at the marginal rate.

  • Eligible counterparties may submit bids for up to ten different interest rate levels. In each bid they state the amount they are willing to transact with the national central banks and the respective interest rate. The interest rates bid must be expressed as multiples of 0.01 percentage point. Bids at a rate below the minimum bid rate announced by the ECB will be discarded.

  • The minimum bid amount is EUR 1,000,000. This means that each bid at a certain percentage point must at least be equal to this amount. Bids exceeding the minimum bid amount must be expressed as multiples of EUR 100,000.

  • In the allotment by the ECB, bids are listed from the highest to the lowest offered interest rate. Bids with the highest interest rate levels will be satisfied first and bids with successively lower interest rates will be accepted until the total liquidity to be allotted is exhausted. If, at the lowest interest rate level accepted (i.e. the marginal interest rate), the aggregate amount bid exceeds the amount still to be allotted, this will be allocated pro rata among the bids.

Finally, it should be recalled that the remuneration of required reserves corresponds to the average of the marginal rates applied in the main refinancing operations over the reserve maintenance period and that other technical details of the Eurosystem's tender procedures in open market operations are provided in the document entitled "The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures", which is available on the ECB's website (

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