Published as part of the ECB Economic Bulletin, Issue 2/2025.
This box describes the Eurosystem liquidity conditions and monetary policy operations in the seventh and eighth reserve maintenance periods of 2024. Together, these two maintenance periods ran from 23 October 2024 to 4 February 2025 (the “review period”).
Average excess liquidity in the euro area banking system continued to decline over the review period. Liquidity provision decreased, owing to lower Eurosystem holdings under the asset purchase programme (APP) and the pandemic emergency purchasing programme (PEPP), as a result of the discontinuation of reinvestments under the APP at the beginning of July 2023 and only partial reinvestments under the PEPP from the beginning of July 2024. Reinvestments under the PEPP were fully discontinued at the end of December 2024. The decline in liquidity provision also reflected the maturing of the last operation under the third series of targeted longer-term refinancing operations (TLTRO III) on 18 December 2024. It was partly offset by the continuing reduction in liquidity absorption through net autonomous factors.
Liquidity needs
The average daily liquidity needs of the banking system, defined as the sum of net autonomous factors and reserve requirements, decreased by €39 billion to €1,423 billion over the review period. This reflected the fact that liquidity-absorbing autonomous factors increased by less than liquidity-providing autonomous factors (Table A). Minimum reserve requirements rose by €1 billion to €164 billion, having only a marginal effect on the change in aggregate liquidity needs.
Liquidity-absorbing autonomous factors increased by €54 billion over the review period, owing mainly to a rise in other autonomous factors. On average, net other autonomous factors grew by €54 billion. This was primarily due to an increase in the revaluation accounts, as a result of higher gold prices, that was more than offset by the corresponding rise in net foreign asset holdings (see the paragraph on liquidity-providing autonomous factors below). Government deposits fell by €7 billion to €111 billion. The overall decrease in this item since 2022 reflects the normalisation of cash buffers held by national treasuries as well as changes in the remuneration of government deposits with the Eurosystem that made it financially more attractive to place funds in the market. The average value of banknotes in circulation rose by €7 billion over the review period to €1,569 billion. Banknote demand continues to be broadly stable after peaking in July 2022.
Liquidity-providing autonomous factors rose by €93 billion, owing primarily to an increase in net foreign assets of €71 billion. This rise in net foreign asset holdings was driven mainly by an increase in gold prices and in foreign currency claims on non-euro area residents. Net assets denominated in euro grew by €22 billion over the review period.
Table A
Eurosystem liquidity conditions
Liabilities
(averages; EUR billions)
Source: ECB.
Notes: All figures in the table are rounded to the nearest €1 billion. Figures in brackets denote the change from the previous review or maintenance period.
1) Computed as the sum of the revaluation accounts, other claims and liabilities of euro area residents, capital and reserves.
2) Memo item that does not appear on the Eurosystem balance sheet and should therefore not be included in the calculation of total liabilities.
Assets
(averages; EUR billions)
Source: ECB.
Notes: All figures in the table are rounded to the nearest €1 billion. Figures in brackets denote the change from the previous review or maintenance period. MRO stands for main refinancing operation, LTRO for longer-term refinancing operation and TLTRO III for the third series of targeted longer-term refinancing operations.
1) With the discontinuation of net asset purchases, the individual breakdown of outright portfolios is no longer shown.
Other liquidity-based information
Source: ECB.
Notes: All figures in the table are rounded to the nearest €1 billion. Figures in brackets denote the change from the previous review or maintenance period.
1) Computed as the sum of net autonomous factors and minimum reserve requirements.
2) Computed as the difference between autonomous liquidity factors on the liabilities side and autonomous liquidity factors on the assets side. For the purposes of this table, items in the course of settlement are also added to net autonomous factors.
3) Computed as the sum of current accounts above minimum reserve requirements and the recourse to the deposit facility minus the recourse to the marginal lending facility.
Interest rate developments
(averages; percentages and percentage points)
Sources: ECB, CME Group and Bloomberg.
Notes: Figures in brackets denote the change in percentage points from the previous review or maintenance period. MRO stands for main refinancing operation and €STR for euro short-term rate.
Liquidity provided through monetary policy instruments
The average amount of liquidity provided through monetary policy instruments decreased by €154 billion to €4,346 billion over the review period (Chart A). The decline in liquidity supply was driven primarily by a reduction in Eurosystem outright portfolios and, to a lesser extent, in credit operations.
Chart A
Changes in daily liquidity provided through open market operations and excess liquidity
(EUR trillions)
Source: ECB.
Note: The latest observations are for 4 February 2025.
The average amount of liquidity provided through outright portfolio holdings decreased by €118 billion to €4,306 billion over the review period. This decline was due to the maturing of APP holdings and to the only partial reinvestments under the PEPP between 1 July and 31 December 2024, after which all reinvestments were discontinued.[1]
The average amount of liquidity provided through credit operations fell by €37 billion to €40 billion over the review period. This decrease largely reflects the reduction in outstanding TLTRO III amounts following the maturing of the last operation under TLTRO III on 18 December 2024 (€29 billion). The average outstanding amounts of three-month longer-term refinancing operations (LTROs) and main refinancing operations (MROs) both increased by €5 billion. Banks’ relatively limited participation in these regular operations, despite the sizeable TLTRO repayments, reflects their comfortable liquidity position in aggregate and the availability of alternative funding sources at attractive market rates and maturities.
Excess liquidity
Average excess liquidity decreased by €116 billion over the review period to stand at €2,923 billion (Chart A). Excess liquidity is the sum of bank reserves held in excess of minimum reserve requirements and banks’ recourse to the deposit facility net of their recourse to the marginal lending facility. It reflects the difference between the total liquidity provided to the banking system and the liquidity needed by banks to cover their minimum reserves. After peaking at €4,748 billion in November 2022, excess liquidity has steadily declined, falling to below €3,000 billion over the review period.
Interest rate developments
In the review period the Governing Council twice cut the three key ECB interest rates – in particular the deposit facility rate, through which it steers the monetary policy stance – by 25 basis points. The rates on the deposit facility, MROs and the marginal lending facility thus stood at 2.75%, 2.90% and 3.15% respectively immediately after the end of the review period.
The average euro short-term rate (€STR) over the review period reflected the ECB’s rate cuts, while maintaining a negative spread with the deposit facility rate. On average, the €STR was 8.4 basis points below the deposit facility rate over the review period, compared with an average of 8.7 basis points in the fifth and sixth maintenance periods of 2024. The pass-through of policy rate changes to unsecured money market rates was complete and immediate.
The average euro area repo rate, as measured by the RepoFunds Rate Euro index, remained closer to the deposit facility rate than to the €STR. On average, the repo rate was 2.6 basis points below the deposit facility rate over the review period, compared with 1.6 basis points in the fifth and sixth maintenance periods of 2024. The relatively tight spread between repo rates and the deposit facility rate reflects the increasing availability of collateral as a result of higher net issuance, the release of collateral pledged against maturing/repaid TLTROs and the decline in the Eurosystem’s APP and PEPP holdings. Another factor contributing to the upward pressure on repo rates was higher demand from leveraged investors to finance long positions in bonds. The pass-through of the policy rate changes to repo rates was also smooth and immediate.
Securities held in the outright portfolios are carried at amortised cost and adjusted at the end of each quarter, which has a marginal impact on the changes in the outright portfolios.