Liquidity conditions and monetary policy operations from February 9 to April 19, 2022

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Prepared by Joonas Koukkunen and Anne van der Graaf

Published as part of the ECB Economic Bulletin, issue 4/2022.

This box describes the ECB’s monetary policy operations and liquidity developments in the first and second reserve maintenance periods of 2022. Together, these two maintenance periods ran from February 9, 2022 to April 19, 2022 (the “Review Period”).

Average excess liquidity in the euro area banking system increased by €77.1 billion during the period under review, reaching a record high of €4,490.6 billion. This was due to asset purchases made under the Pandemic Emergency Purchase Program (PEPP) and the Asset Purchase Program (APP). The effect of asset purchases on excess liquidity was partially offset by a seasonal increase in net autonomous factors and a slight drop of around €4.5 billion in outstanding loans.

Liquidity needs

The average daily liquidity requirement of the banking system, defined as the sum of the net autonomous factors and the reserve needs, increased by 81.1 billion euros to 2,575.9 billion euros during the exam period. Compared to the previous reporting period, the increase is almost entirely due to an increase of EUR 81.2 billion in net autonomous factors to EUR 2,422.1 billion (see table section A titled “Other Liquidity Information”), while reserve requirements increased only slightly by €0.6 billion to €155.4 billion.

Liquidity-absorbing autonomous factors increased by €149.9 billion to €3,321.9 billion during the review period, mainly due to higher other autonomous factors and government deposits . Other autonomous factors (see Table A below for further details) increased by €67.7 billion during the period under review to €1,103.5 billion. Banknotes in circulation rose sharply from 32.2 billion euros to 1,563.2 billion euros. This would be partly due to the high but temporary precautionary demand in some jurisdictions following Russia’s invasion of Ukraine, as well as the fact that households in some eurozone countries made withdrawals. in cash from ad hoc public support payments. General government deposits followed the usual seasonal pattern, increasing by €50.0 billion to €655.2 billion.

Autonomous liquidity-providing factors increased by €68.7 billion to €900.1 billion. This is explained by an increase of 26.9 billion euros in net assets denominated in euros and 41.8 billion euros in net foreign assets.

Table A gives an overview of the autonomous factors[1] discussed above and their modifications.

Table A

Eurosystem liquidity conditions

Passives

(averages; billions of euros)

Source: ECB.
Notes: All figures in the table are rounded to the nearest 0.1 billion euros. The numbers in parentheses indicate the change from the previous review or maintenance period.
1) Calculated as the sum of revaluation accounts, other claims and liabilities of euro area residents, capital and reserves.
2) Memorandum item which is not included in the balance sheet of the Eurosystem and should therefore not be included in the calculation of total liabilities.
3) Exempted and non-exempted excess reserves are explained on the ECB’s website.

Assets

(averages; billions of euros)

Source: ECB.
Notes: All figures in the table are rounded to the nearest 0.1 billion euros. The numbers in parentheses indicate the change from the previous review or maintenance period.

Other liquidity information

(averages; billions of euros)

Source: ECB.
Notes: All figures in the table are rounded to the nearest 0.1 billion euros. The numbers in parentheses indicate the change from the previous review or maintenance period.
1) Calculated as the sum of net autonomous factors and reserve requirements.
2) Calculated as the difference between the autonomous liquidity factors in liabilities and the autonomous liquidity factors in assets. For the purposes of this table, items in course of settlement are also added to the net autonomous factors.
3) Calculated as the sum of current accounts over reserve requirements and recourse to the deposit facility less recourse to the marginal lending facility.

Evolution of interest rates

(means; percentages)

Source: ECB.
Notes: The numbers in parentheses indicate the change from the previous review or maintenance period.

Liquidity provided by monetary policy instruments

The average amount of liquidity provided through monetary policy instruments increased by €158.1 billion to €7,066.4 billion over the review period (Graph A). This was due to continued net purchases under asset purchase programs, primarily the PEPP, during the first maintenance period of 2022. Net asset purchases under the PEPP were interrupted during the second maintenance period at the end of the first quarter, thus limiting the overall contribution of the purchase programs to the increase in the liquidity provision. Matured credit operations and TLTRO III redemptions resulted in a very moderate liquidity drain during the period under review.

Table A

Evolution of liquidity provided by open market operations and excess liquidity

(in billions of euros)

Source: ECB.
Note: The latest observations are for April 19, 2022.

The average amount of liquidity provided through credit operations fell by EUR 4.5 billion during the period under review. The decrease is a result of TLTRO III repayments during the second maintenance period. Three-month main refinancing operations (MROs) and longer-term refinancing operations (LTROs) continued to play a marginal role, with average recourse to LTROs remaining broadly stable and MROs increasing slightly, by 0.1 billion euros compared to the previous period. exam session.

At the same time, firm portfolios increased by €162.7 billion to €4,865.6 billion, due 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 to the average for the previous reference period. Among the ECB’s asset purchase programs, the largest increase in purchases took place under the PEPP, followed by the public sector purchase program (PSPP) and the corporate sector purchase program (CSPP), with average increases of €37.9 billion to €2,525.6 billion and €16.4 billion to €326.5 billion respectively. The maturity of securities held in non-active programs reduced the size of outright portfolios by €3.8 billion.

Excess liquidity

Average excess liquidity increased by €77.1 billion to a new record high of €4,490.6 billion (Chart A). Excess liquidity is the sum of banks’ reserves above reserve requirements and 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 the banks’ liquidity needs. Banks’ current account holdings in excess of required reserves increased by €85.7 billion to €3,758.7 billion, while average recourse to the deposit facility decreased by 9 .2 billion euros to settle at 730.4 billion euros.

Excess reserves exempt from the negative deposit facility rate under the dual system[2] increased by 0.4 billion euros to 923.0 billion euros. Non-exempt excess liquidity, which includes the deposit facility, increased by €76.1 billion to €3,566.1 billion. The aggregate utilization rate of the maximum exempted allowance, i.e. the ratio between the exempted reserves and the maximum exempted amount[3], has remained above 98% since the third maintenance period of 2020 and has remained stable at 99.0% since the previous review period. The share of exempt excess reserves in total excess liquidity stood at 20.6%, compared to 20.9% in the previous review period.

Evolution of interest rates

The average €STR remained broadly unchanged at -58.0 basis points over the review period. Due to the high level of excess liquidity, the €STR continues to be relatively insensitive even to large fluctuations in liquidity. The key ECB rates – the deposit facility, MRO and marginal lending facility rates – remained unchanged during the period under review.

The Eurozone average repo rate, as measured by the RepoFunds Rate Euro Index, increased by 10.8 basis points to -0.64% during the period under review. The increase can be attributed to the normalization after the record low seen towards the end of the year, which weighed heavily on the average figure of the RepoFunds Rate Euro Index during the previous reporting period. Despite the rise in the average level, the pattern at the end of the quarter was particularly marked at the end of March, when the RepoFunds Rate Euro index recorded a level of -0.904%, i.e. its lowest level, excluding the end of the year, since the end of of the March 2017 quarter.

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