Spread between the euro short-term rate (€STR) and the deposit facility rate

Yasmina Santalla Pérez, María del Carmen Castillo Lozoya, Laura García Ramos and José María Arregui Gil
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Yasmina Santalla Pérez: Banco de España
María del Carmen Castillo Lozoya: Banco de España
Laura García Ramos: Banco de España
José María Arregui Gil: Banco de España

Economic Bulletin, 2023, issue 2023/Q3, No 08

Abstract: Rationale This article analyses the factors that are contributing to the widening of the spread between the euro short-term rate (€STR) and the deposit facility rate, with a view to assessing monetary policy transmission in the Eurosystem. Takeaways •The key factors that explain the behaviour of this spread are the expansion of the Eurosystem’s balance sheet and the change in the monetary policy stance. •The pass-through of the recent interest rate hikes to money market rates has been effective and cannot explain the widening of the spread. •Once the rate hiking cycle comes to an end, the contraction in the Eurosystem’s balance sheet can be expected to curb or even reverse the trend observed in the spread.

Keywords: Euro short-term rate; deposit facility; monetary policy transmission; money market; money market statistics; Eurosystem balance sheet; excess liquidity; non-bank financial institutions (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:bde:journl:y:2023:i:03:n:08

DOI: 10.53479/33452

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