Published as part of the ECB Economic Bulletin, Issue 4/2022.
This box describes the ECB’s monetary policy operations and liquidity developments during the first and second reserve maintenance periods of 2022. Together, these two maintenance periods ran from 9 February 2022 to 19 April 2022 (the “review period”).
Average excess liquidity in the euro area banking system rose by €77.1 billion during the review period, reaching a record level of €4,490.6 billion. This was due to asset purchases conducted under the pandemic emergency purchase programme (PEPP) and the asset purchase programme (APP). The effect of asset purchases on excess liquidity was partially offset by a seasonal increase in net autonomous factors and a slight decrease of around €4.5 billion in outstanding credit operations.
The average daily liquidity needs of the banking system, defined as the sum of net autonomous factors and reserve requirements, increased by €81.1 billion to €2,575.9 billion during the review period. Compared with the previous review period, the increase was due almost entirely to a rise of €81.2 billion in net autonomous factors, up to €2422.1 billion (see the section of Table A entitled “Other liquidity-based information”), while minimum reserve requirements rose only marginally by €0.6 billion to €155.4 billion.
Liquidity-absorbing autonomous factors increased during the review period by €149.9 billion to €3,321.9 billion, owing mainly to rises in other autonomous factors and government deposits. Other autonomous factors (see Table A below for further information) rose during the review period by €67.7 billion to €1,103.5 billion. Banknotes in circulation increased strongly by €32.2 billion to €1,563.2 billion. Reportedly, this was due in part to the elevated but temporary precautionary demand in some jurisdictions as a consequence of Russia’s invasion of Ukraine, and also to households in some euro area countries making cash withdrawals of ad-hoc government support payments. Government deposits followed the typical seasonal pattern, rising by €50.0 billion to €655.2 billion.
Liquidity-providing autonomous factors rose by €68.7 billion to €900.1 billion. This was due to an increase of €26.9 billion in net assets denominated in euro and of €41.8 billion in net foreign assets.
Table A provides an overview of the autonomous factors discussed above and their changes.
Eurosystem liquidity conditions
Liquidity provided through monetary policy instruments
The average amount of liquidity provided through monetary policy instruments increased by €158.1 billion to €7,066.4 billion during the review period (Chart A). This was the result of ongoing net purchases under the asset purchase programmes, primarily the PEPP, in the first maintenance period of 2022. Net asset purchases under the PEPP were halted in the course of the second maintenance period at the end of the first quarter, thereby limiting the purchase programmes’ overall contribution to the increase in liquidity provision. Maturing credit operations and TLTRO III repayments resulted in a very moderate drain of liquidity over the review period.
Evolution of liquidity provided through open market operations and excess liquidity
The average amount of liquidity provided through credit operations decreased by €4.5 billion during the review period. The decrease resulted from TLTRO III repayments during the second maintenance period. The main refinancing operations (MROs) and three-month longer-term refinancing operations (LTROs) continued to play only a marginal role, with the average recourse to LTROs remaining broadly stable and to MROs increasing slightly, by €0.1 billion compared with the previous review period.
At the same time, outright portfolios rose by €162.7 billion to €4,865.6 billion, owing to net purchases under the PEPP and the APP. Average holdings in the PEPP increased by €115.1 billion to €1,685.1 billion compared with the average for the previous review period. Across the ECB’s asset purchase programmes, the largest increase in purchases was under the PEPP, followed by the public sector purchase programme (PSPP) and the corporate sector purchase programme (CSPP), with average increases of €37.9 billion to €2,525.6 billion and €16.4 billion to €326.5 billion respectively. The maturing of securities held in non-active programmes reduced the size of outright portfolios by €3.8 billion.
Average excess liquidity increased by €77.1 billion, reaching a new record high of €4,490.6 billion (Chart A). Excess liquidity is the sum of banks’ reserves above the reserve requirements and the recourse to the deposit facility net of any recourse to the marginal lending facility. It reflects the difference between the total liquidity provided to the banking system and banks’ liquidity needs. Banks’ current account holdings in excess of minimum reserve requirements grew by €85.7 billion to €3,758.7 billion, while the average recourse to the deposit facility decreased by €9.2 billion to €730.4 billion.
Excess reserves exempt from the negative deposit facility rate under the two-tier system rose by €0.4 billion to €923.0 billion. Non-exempt excess liquidity, which includes the deposit facility, increased by €76.1 billion, reaching €3,566.1 billion. The aggregate utilisation rate of the maximum exemption allowance, i.e. the ratio of exempted reserves to the maximum exempted amount, has remained above 98% since the third maintenance period of 2020 and remained stable at 99.0% since the previous review period. The share of exempted excess reserves in total excess liquidity stood at 20.6%, compared with 20.9% in the previous review period.
Interest rate developments
The average €STR remained broadly unchanged at -58.0 basis points during the review period. Owing to the high level of excess liquidity, the €STR continues to be relatively unresponsive, even to substantial fluctuations in liquidity. The ECB policy rates – the rates on the deposit facility, MROs and the marginal lending facility – were left unchanged during the review period.
The average euro area repo rate, measured by the RepoFunds Rate Euro Index, rose by 10.8 basis points to -0.64% during the review period. The increase can be attributed to the normalisation after the record low observed around the year-end, which weighed heavily on the average RepoFunds Rate Euro Index figure in the previous review period. Despite the rise in the average level, the end-of-quarter pattern was particularly pronounced at the end of March, when the RepoFunds Rate Euro Index recorded a level of -0.904%, which is its lowest level, excluding year-ends, since the quarter-end of March 2017.
For further details on autonomous factors, see the article entitled “The liquidity management of the ECB”, Monthly Bulletin, ECB, May 2002.
More information about the two-tier system for remunerating excess reserve holdings is available on the ECB’s website.
The maximum exempted amount is measured as the sum of the minimum reserves and the exemption allowance, which is equal to six times the minimum reserves amount.