Monthly Bulletin July 2009 - Banque de France

decline: the total amount of refinancing stabilised
at below €700 billion in the following months,
and recourse to the deposit facility, which had
become much less attractive, declined to a daily
average of €84 billion between 21 January and
12 May 2009. Also, EONIA turnover started
to increase again (see Chart 7). In the same
period, the average daily EONIA volume stood
at €44 billion, up from €34 billion during the
period with a narrower corridor. This could be
an indication that the wider corridor left more
room for the matching of demand and supply
in the short-term money market, even in an
environment of continuing high credit risk.
At the same time, the wider corridor allowed
for a further increase of the spread between the
EONIA and the fixed rate in the MRO which was
caused by the continued ample liquidity supply.
With a narrower corridor between 9 October
2008 and 20 January 2009, the EONIA spread
stood at 27 basis points. This spread rose to
62 basis points in the period from 21 January to
12 May 2009. This substantial decoupling of
short-term rates from the policy rate illustrates
further the segmentation of the money market,
since the cost of refinancing for banks with
access to the money market (close to the
EONIA rate) was substantially below the cost of
refinancing for banks that needed to rely on the
Eurosystem for refinancing (the MRO rate).
7 MAY 2009: ENHANCED CREDIT SUPPORT
More recently, the Eurosystem has decided
to further expand its non-standard measures.
Specifically, in line with the additional
longer-term refinancing operations conducted
since October 2008, the Eurosystem decided
that, starting on 23 June 2009, it will carry out a
series of refinancing operations with a maturity of
12 months, applying a fixed rate tender
procedure with full allotment. In addition, it
decided to purchase euro-denominated covered
bonds issued in the euro area and to grant
the European Investment Bank the status of
an eligible counterparty in the Eurosystem’s
refinancing operations. These decisions were
taken to promote the decline in money market
term rates, to encourage banks to maintain and
expand their lending to customers, to help to
improve market liquidity in important segments
of the private debt security market, and to ease
funding conditions for banks and enterprises. In
that context and against the background of signs
of increasing confidence in the short-term money
market, the narrowing of the corridor between the
MRO rate and the deposit facility rate from 100
to 75 basis points, that took place in conjunction
with the reduction of the MRO rate from 1.25%
to 1.00% as of 13 May 2009, was not deemed
to entail a significant risk of reducing money
market activity.
Box
IMPACT ON THE BROADER ECONOMY OF THE MEASURES IMPLEMENTED SINCE OCTOBER 2008
The changes in the operational framework introduced since October 2008, in combination with the
easing of the ECB’s key interest rates, have helped to lower the cost of financing for the economy
at large. As seen in Chart A, the recent and significant drop in the euro overnight index average
(EONIA), which mainly resulted from the unprecedented cut in rates in the main refinancing
operations (a reduction of 325 basis points between October 2008 and May 2009), but also to some
extent from the fixed rate tender procedure with full allotment, was reflected in a variety of short-term
money market rates and bank interest rates, which have also posted a marked drop since October.
Moreover, the introduction of the fixed rate tender procedure with full allotment has ensured
that some of the necessary conditions for preserving the flow of loans from euro area credit
86 ECB
Monthly Bulletin
July 2009