Commerzbank Weigh In On EUR Month-End Matters/ECB Feedthrough

Commerzbank write “the picture of distortions from the 0% remuneration of reserve requirements (MRR) is becoming clearer, with January providing the next data point. Recall that a bank's customer deposits and <2yr funding at the end of the month determine the reserve base. The implied absolute "cost" (lost interest income from holding reserves at the ECB at 0% for 5-7 weeks) at the relevant month ends since July has been 140-196bp, depending on the length of the reserve period and the (expected) ECB deposit rate”

• “Yesterday, €STR fell by 1.3bp, while it may have helped that the January month-end is relevant for an unusually short reserve period of 35 days. On average, since the introduction of the 0% MRR, €STR has fallen by 1.6bp on regular month-ends. This is more than twice the average before the change, but can still be considered muted, suggesting that banks are struggling to pass on the impact of the MRR to their customers on a larger scale. This may change if the MRR is raised, and the limited distortions so far may be another argument for the ECB to raise it from 1% to 2%.”