MNI BRIEF: ECB Tweaks Gov't Deposit Rules To Smooth Markets

Euro area government deposits held at the central bank will be remunerated at the short-term rate (€STR) minus 20 basis points from 1 May 2023, the European Central Bank announced Tuesday, citing repo market fragility, persistent collateral scarcity and excess liquidity concerns as the reason to amend the current arrangement, due to expire on 30 April 2023, with an updated scheme.

“This decision reflects the desire to encourage market intermediation, with the changes to the remuneration regime providing incentives for depositors to gradually phase out their holdings with the Eurosystem,” a statement said.

“The Governing Council will continue to monitor money market developments and the evolution of these deposit holdings, and it stands ready to make further adjustments to the remuneration regime if necessary.”