On 1 January 1999 the ESCB will assume responsibility for defining and implementing the single monetary policy of the euro area. At today's meeting, the Governing Council of the ECB took a decision on the interest rates that will apply to the monetary policy instruments of the ESCB as from the start of Stage Three of EMU. These ECB interest rates will play a key role in signalling the monetary policy stance of the ESCB.
In this context, the Governing Council recalled that on 3 December 1998, in a co-ordinated decision, all the national central banks participating in the single monetary policy lowered their key central bank interest rates to 3% (with the exception of the Banca d'Italia, which reduced its discount rate to 3.5%). As explained by the ECB at that time, these decisions were based on a consensus reached in the ECB's Governing Council following a common assessment of the economic, monetary and financial situation in the euro area. The joint reduction in central interest rates had to be seen as a de facto decision on the level of interest rates with which the ESCB will start Stage Three and which it intends to maintain for the foreseeable future.
Against this background, the Governing Council decided today to conduct the first main refinancing operation of the ESCB as a fixed rate tender and to set the level of the interest rate for this operation at 3%, in line with the key central bank rates prevailing at the end of Stage Two.
With respect to the interest rates on the ESCB's standing facilities, which are designed to form a corridor for movements in short-term money market rates, the Governing Council decided that the interest rate for the marginal lending facility will be set at a level of 4.5% and the interest rate for the deposit facility at a level of 2%. These are the rates of the ESCB's standing facilities at the start of Stage Three, i.e. 1 January 1999.
However, as a transitory measure, between 4 January 1999 and 21 January 1999, the interest rate for the marginal lending facility will be set at a level of 3.25% and the interest rate for the deposit facility at a level of 2.75%. This measure aims at smoothing the adaptation of market participants to the integrated euro money market during the initial days of Monetary Union. The Governing Council intends to terminate this transitory measure following its meeting on 21 January 1999.
Further details of relevance for the submission of bids by counterparties to the first main refinancing operation will be announced on 4 January 1999. The allotment decision of the operation will be made public on 5 January 1999 and settlement will take place on 7 January 1999.
The first longer-term refinancing operation will be announced on 12 January 1999. The allotment decision of the operation will be made public on 13 January 1999 and settlement will take place on 14 January 1999. The Governing Council decided today that this operation will be conducted as a variable rate tender, using the single rate auction procedure.
In order to guide financial market participants to the new euro money market situation prevailing in Stage Three, some further technical information concerning the liquidity conditions expected at the start of Stage Three is annexed to this press release.
To contribute to a smooth reserve management by credit institutions and to a smooth functioning of the euro area-wide interbank money market at the beginning of Stage Three, the Governing Council of the ECB wishes to draw attention to some features of the liquidity situation prevailing in the first days of Stage Three:
The transition to the reserve requirement system of the ESCB is expected to imply that the aggregate reserve holdings of credit institutions might be lower on the first three days of Stage Three than the aggregate reserve requirements to be fulfilled on average within the first maintenance period ending on 23 February 1999. However, the ESCB intends to provide sufficient liquidity in its first regular refinancing operations to allow credit institutions (on aggregate) to neutralise the reserve deficits accumulated in the first days of Stage Three. It should be noted that the precise aggregate reserve requirements relevant in the maintenance period of 1 January 1999 to 23 February 1999 will not be known from 1 January 1999 on, but only in the course of the first maintenance period.
The initial distribution of liquidity within the euro area might be uneven. For that case, interbank flows of reserves are anticipated to level the liquidity situation in the euro area from 4 January 1999 on.
As a general measure to give orientation to credit institutions in their reserve management, the Governing Council of the ECB has also taken the decision to publish regularly in Stage Three the following information regarding the liquidity conditions in the euro area:
the aggregate current account holdings (mainly consisting of minimum reserve holdings) of euro area credit institutions with the ESCB on the preceding ESCB business day;
the aggregate use of the standing facilities on the preceding ESCB business day;
the aggregate minimum reserve requirement for the current maintenance period; (This figure will be published after the publication of monetary statistics for the same month. In effect, this will be a few days after the start of the maintenance period.)
the average aggregate current account holdings (including minimum reserves holdings) of euro area credit institutions in the current maintenance period up to (and including) the preceding ESCB business day.
The ECB intends to publish this information by 9.30 a.m. on every ESCB business day. Since the reserve requirements in the first maintenance period will not be known until the end of January 1999, the ECB will provide, in this special case, tentative estimates of the aggregate reserve requirements.
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