ECB Staff Preparing For New Era Of Tighter Money (RTRS Sources)

The latest ECB sources piece from RTRS notes that “senior European Central Bank staff are meeting in Helsinki this week to work on a new framework for steering short-term borrowing costs.”

• “Staff will consider how the ECB should operate now that inflation and interest rates are high and efforts to curb price growth are being impeded by over EUR4tn of excess liquidity.”
• “Staff will also go through options for adjusting the "corridor" between the ECB's three interest rates and prepare for a review promised this year of the broader operational framework.”
• “Reducing that asymmetry is seen as a first step, although policymakers have so far rejected any move as premature.”
• “A decision on the corridor is unlikely to come in July but may be on the agenda after the summer break.”
• “A second debate, on how the ECB's balance sheet will function as liquidity drains out of the system, is potentially more significant but less urgent, the sources said, as it may be years before banks need to regularly borrow cash from the ECB.”