ECB‘s Nagel: Excess Liquidity to Persist, Short-Term Interest Rates to Evolve Near Deposit Facility Rate

16 May 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – Excess liquidity would persist and short-term money market interest rates would remain close to the deposit facility rate, European Central Bank Governing Council member Joachim Nagel said Thursday.

In a speech on the ECB’s operational framework review in Konstanz, Germany, Nagel, who heads the German Bundesbank, said, ‘While our balance sheet will gradually shrink, excess liquidity will remain significant over the coming years. Accordingly, while some volatility cannot be ruled out, short-term money market interest rates are expected to continue evolving in the vicinity of the deposit facility rate’.

Until the next review of the ECB’s operational framework, aspects such as the development of money market activity, fluctuations of short-term interest rates and the degree of collateral transformation would be closely monitored and assessed, he said.

‘An adjustment of our operational framework was necessary to reflect structural market changes. Is that framework now set in stone? I don’t know yet. But in the past, we have shown our capability and flexibility to adapt to changing market conditions. Let’s be open to this, now and in the future’, Nagel said.