ECB takes further steps to improve liquidity

The European Central Bank (ECB) has boosted levels of liquidity over the Christmas period by lending €348.6 billion in a main refinancing operation that matures on January 4.

The sum is almost €167 billion higher than the bank's €182 billion benchmark figure would have suggested, but the extra demand for liquidity had already been factored in.

On November 23, the ECB stated that, in line with its aim to keep very short-term money market interest rates close to the minimum bid rate in the eurosystem’s main refinancing operations, it would reinforce its policy to allot more than the benchmark amount in main refinancing operations for as long as needed and at least until the new year. A total of 390 banks took advantage of the two-week main refinancing operation at an interest rate of 4.21%, after putting in bids at between 4% and 4.45%.

The news follows last week’s announcement by the ECB that it will also conduct two US-dollar operations to provide liquidity of up to $20 billion, for a maturity of 28 and 35 days. Settlement of the bids, submitted on December 17 and 20, is scheduled for December 20 and 27, respectively.

The Bank of Canada, the Bank of England, the Federal Reserve, and the Swiss National Bank have also announced measures to address elevated pressure in the short-term funding market. On December 17, the Federal Reserve offered $20 billion in 28-day credit through its Term Auction Facility. The Bank of England has also increased the total size of reserves offered in its long-term repo open market operations of December 18 and January 15 from £2.85 billion to £11.35 billion, £10 billion of which will be offered at the three-month maturity.

See also: Central banks offer $20bn auctions to revive liquidity