The ECB’s new operational framework: excess liquidity remains key

The ECB’s published e arlier this week changes to its operational framework , that is the mechanism through which it implements it s monetary policy. The Deposit Facility Rate is now officially the ECB’s policy rate, reflecting the intended policy stance. Because of this, the ECB will ensure that there is a sufficient amount of excess central bank reserves in the system to keep the overnight rate close to the DFR. For the time being, liquidity will be provided mainly via short-term and 3-month lending operations. Once the run off of the ECB’s APP and PEPP portfolio have sufficiently progressed, the ECB will also offer “new structural longer-term refinancing operations” and t he ECB will also built up a “structural portfolio of securities”. G iven that the amount of excess liquidity will remain very large in the coming two years none of these changes will have any immediate impact. This also leaves the ECB enough time to clarify what the size and the structure of its new portfolio of securities.