Goldman On The MRR Debate

Goldman Sachs note that “in recent months, with ECB Governing Council members more willing to discuss the reserve framework, there is increasing speculation about an increase in Minimum Reserve Requirements (MRR), possibly as early as this week.

• “We argue that an increase in MRR beyond 3% of banks' short-term liabilities is unlikely. This is because the modest savings generated – €6-7bn per year for the Eurosystem as a whole – likely do not outweigh the corresponding risks to policy transmission.”
• “We continue to believe PEPP runoff is a better fit for balance sheet policy normalisation. But if the Governing Council wants to go ahead with an increase in MRR, we think it is more likely in the context of its operational framework review with conclusions due in 1Q24, as at that point, the ECB will have a clearer sense of its desired equilibrium balance sheet size and composition.”