The impact of monetary policy normalisation on secured money markets

Claudio Vela and Alicia Aguilar
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Claudio Vela: Banco de España
Alicia Aguilar: Banco de España

Economic Bulletin, 2024, issue 2024/Q1, No 04, 9 pages

Abstract: Rationale This article offers an empirical analysis of the main factors which explain the variations in the repo-deposit facility rate (DFR) spread in the euro area, focusing on the impact of monetary policy normalisation. The findings suggest that a notable rise in interest rate expectations was the main factor behind the widening of the spread in 2022. In 2023 the slowdown in the pace of interest rate hike expectations and the Eurosystem’s balance sheet reduction returned the spread to the levels prior to the start of the policy rate hiking cycle. Takeaways •The widening of the repo-DFR spread in 2022 arose mainly from interest rate hike expectations. •Other conjunctural factors such as monetary policy uncertainty and the demand for short-term assets also contributed to the widening of the spread. •The temporary tensions seen in this market in 2022 eased in 2023 with lower expectations of interest rate hikes.

Keywords: Repo rates; interest rate expectations; monetary policy normalisation; granular information; panel data (search for similar items in EconPapers)
JEL-codes: C23 C81 E40 E52 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bde:journl:y:2024:i:01:n:04

DOI: 10.53479/36012

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