Reflections on the Eurosystem’s new operational framework

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The European Central Bank (ECB) implemented monetary policy using a corridor system before the global financial crisis, with the Governing Council setting three interest rates with specific spreads. This system led to an opportunity cost for banks, which could lend or borrow at higher or lower rates in the interbank market. The ECB's asset purchase programme resulted in excess liquidity and a decline in short-term interest rates. To address this, the ECB's Governing Council decided on a spread to limit volatility in short-term interest rates, balancing the open economy principle and effectiveness principle. Banks must maintain a minimum stock of high-quality liquid assets to cover their net liquidity outflows, and the ECB will monitor market activity, collateral transformation, and short-term interest rates to assess the impact of these changes on monetary policy transmission. Over the next two years, factors such as collateral transformation and short-term interest rates should be closely scrutinized.