Forecasting liquidity and conducting credit operations€¦ · Forecasting liquidity and conducting...
Transcript of Forecasting liquidity and conducting credit operations€¦ · Forecasting liquidity and conducting...
Forecasting liquidity and conducting credit operations
Irene Katsalirou Money Market and Liquidity Division Directorate General Market Operations
ECB Central Banking Seminar Frankfurt am Main, 4 July 2019
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Overview
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Forecasting liquidity and conducting credit operations
Recent and future liquidity developments
Liquidity management concept and main components
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Integrated structure
Focus on liquidity management and operations
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Liquidity management • Compilation and publication of
liquidity data for Eurosystem: (i) Current accounts; (ii) Standing facilities and (iii) Autonomous factors
• Analysis of liquidity data/distribution
Operations • Standard and non-standard • Analysis & input for design • Repayments • USD liquidity providing
operations • FX swap lines (USD, JPY,
CAD, GBP, CHF, CNY…)
Money Market Monitoring • Market monitoring and analysis • Market Intelligence • NCBs & non euro area CBs • EONIA calculating agent/€STR
administrator • €STR and RFR working group • Money market survey and MMSR
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Liquidity management is closely related to interest rate management
Managing day-to-day liquidity to steer interest rates
Overnight interest rate
Policy rate
Marginal lending facility
Deposit facility
Liquidity supply Eurosystem
Liquidity demand banks
Autonomous factors
Excess reserves
LTRO**
FTO***
Open market ops
Required reserves
*Main Refinancing Operation, **Longer-term Refinancing Operation, ***Fine-tuning Operation
MRO*
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OPEN
MARKET
OPERATIONS
Standard Tender
Quick Tender & Bilateral Operation •non standardised maturity •no regular frequency
MRO weekly
1-week maturity
LTRO
Fine Tuning
Structural Operation
Liquidity Providing Liquidity Absorbing
STANDING
FACILITIES
•Access at the discretion of counterparties •Overnight maturity
Marginal Lending Facility
Deposit Facility
Overview of monetary policy tools
Reverse Transaction
FX Swaps
Reverse Transaction FX Swaps
Fixed Term Deposit
Reverse Transaction Outright purchases
Issuance of Debt Certificates;
Outright Sales
Reverse Transaction
Deposit
Reverse Transaction
Reverse Transaction
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Eurosystem simplified balance sheet
Liquidity demand and supply from a balance sheet perspective ECB-PUBLIC
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Assets Liabilities
Monetary policy operations Reverse open market operations Marginal lending facility Securities held for monetary policy purposes
Monetary policy operations Deposit facility
Autonomous factors Net assets denominated in euro Net foreign assets
Autonomous factors Banknotes in circulation Government deposits Other autonomous factors (net)
Current account holdings Minimum reserve requirements Excess reserves
Intra-Eurosystem claims Intra-Eurosystem liabilities
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Liquidity demand: Reserve requirements
What are they? • Create/enlarge structural liquidity deficit (of the banking sector) stabilise
money market rates
• Need to be fulfilled on average over the reserve maintenance period
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165
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1 4 7 10 13 16 19 22 25 28
EUR bn
Days in MP
Daily Current Accounts Reserve Requirement
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Liquidity demand: Excess reserves
What are they? • Reserve holdings in excess of minimum reserve requirements. • Remuneration rate = Minimum of 0% or the ECB Deposit Facility
rate (currently -0.40%)
Why are they needed? • Payment needs of counterparties not subject to minimum
reserve requirements • Banks with an effective reserve requirement of zero • Counterparties which are not credit institutions • Foreign credit institutions
• Banks that have already fulfilled their reserve requirements • Individual liquidity shocks after markets close • Regulatory motives
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Autonomous factors
What are they?
Sum of all items on a central bank’s balance sheet that are not related to monetary policy operations or current account holdings of counterparties held with the central bank Which are they? The main Autonomous Factors are:
1. Banknotes in circulation 2. Government deposits 3. Net Foreign Assets 4. Net Assets Denominated In Euro 5. Items in course of settlement 6. Other Autonomous Factors
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Developments in main Autonomous Factors since 2015
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Autonomous factors ECB-PUBLIC
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Intra-week
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mon tue wed thu fri sat sun
day of the week
bank
note
s in
EU
R b
n
Banknotes forecasting
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day1
day 2
day 3
day 4
day 5
day 8
day 9da
y 10da
y 11da
y 12da
y 15da
y 16da
y 17da
y 18da
y 19da
y 22da
y 23da
y 24da
y 25da
y 26da
y 29da
y 30
day of the month
bank
note
s in
EUR
bn
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
monthba
nkno
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in E
UR
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S ummer holidays
C hris tmas
Intra-month
Intra-year
Banknotes forecasts can be impacted by seasonal volatility
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Banknotes time series
Banknotes in circulation across the Eurosystem have displayed an upward trend, however trends differ in individual countries
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1400EUR bn
Banknotes Developments: 2007 - present
Eurosystem banknotes in circulation
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-50
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100
150
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250EUR bnEUR bn
Banknotes developments in selcted countries
ES FR GR IT PT DE (rhs)
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Government deposit forecasting
• Data series consist of hundreds of accounts: – Treasury accounts, – Social security funds – Local / Regional authorities
• Very large inflows and outflows during the day
• In some NCBs, end-of-day balances usually small, but can be significant in other NCBs
• Importance of information from the national Treasuries and daily bilateral contacts
• Negative rates have increased the volatility of government deposits, making them difficult to forecast
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Government deposits evolution: 2012 - present
Government deposits exhibit volatility and can be difficult to forecast in certain jurisdictions
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Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
EUR bn Government deposits: 2012 - present
Total Euroaystem government deposits
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Forecasting NFA and NADIE
• Net Foreign Assets (NFA) transactions:
• Related to management of FX reserves / gold • FX trading on behalf of international organisations • Payment to purchase FX on behalf of governments • Related to IMF • During the crisis: USD repos, special lending agreements
• Net Assets denominated in Euro (NADIE) transactions:
• Investment operations • Reserve management services • Time deposits accounts for foreign central banks • During crisis: USD repos, special lending agreements, foreign
exchange swaps
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Non-monetary policy deposits increased significantly and exhibit volatility especially around the banks’ balance sheet reporting days
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Developments in non-monetary policy deposits
-2.4
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-1.6
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% EUR Bn
Other liabilities (L5.2) Liabilities to non-euro area res. (L6)
ECB DFR (rhs) RepoFund EU (rhs)
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Publication of the daily liquidity data • On a daily basis, the ECB publishes figures on liquidity conditions, autonomous
factors and outstanding market operations • Data is published to the ECB website via the ECB’s Market Information
Dissemination (MID) system https://www.ecb.europa.eu/mopo/liq/html/index.en.html
• Wire services pick data up from MID
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Rubric
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Banks can calculate liquidity needs
• Expected liquidity conditions in the euro area during a given MRO week can be estimated using the weekly estimation of the average autonomous factors
• This allows counterparties to estimate their liquidity needs • The higher the autonomous factors, the lower the expected liquidity
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Rubric
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Liquidity supply: Benchmark calculation
Concept • Benchmark amount = MRO allotment amount that would create neutral
liquidity conditions (demand=supply) for the next MRO period (7-days) • Benchmark amount would allow for a smooth fulfilment of the reserve
requirements MRO benchmark calculation Future liquidity needs during upcoming MRO period • Liquidity already provided through other operations during MRO week
(e.g. LTRO) • Accumulated liquidity imbalance so far in the maintenance period
For further information see http://www.ecb.int/mopo/implement/omo/pdf/How_to_calculate_the_benchmark.pdf
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Liquidity management from the ECB perspective
The ECB also performs liquidity management tasks on a weekly and per MP basis Weekly tasks:
Monday Calculation of benchmark for
inclusion in MRO announcement
Estimate of AFF created and
publish via MID
Tuesday Re-calculate
benchmark for inclusion in MRO
allotment
Calculate new estimate of AFF and publish via
MID
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Liquidity supply: LiCo allotment proposal and decision
Discussion and proposal by the Liquidity Committee (LiCo) • Two Executive Board members in charge of Directorate General
Market Operations (DG-M), Directorate General Economics (DG-E) • Management and Experts from DG-E and DG-M
Basis for discussion • Financial market review and market view on liquidity (DG-M) • Economic review (DG-E) • Integrated reporting on money market and liquidity
developments. Liquidity situation evaluation (DG-M) • Allotment result: special interest in bidding behaviour (DG-M)
(Broad based) recommendation from LiCo to the Executive Board
Final allotment decision by Executive Board
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Rubric
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MRO allotments aim to establish
Liquidity supply: MRO allotment before the crisis
• Neutral conditions at the end of the maintenance period • Smooth fulfilment of reserve requirements during the period
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11-Jul-07 18-Jul-07 25-Jul-07 01-Aug-07
EUR bn Daily Current Accounts Reserve Requirement
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Fine-tuning operation on last day of MP steers rates
Liquidity supply: Fine-tuning operation
• Such that EONIA = mid point of corridor = MRO/policy rate
0.5
1.0
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2.0
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%
Days in MP
Marginal lending rate Overnight rate Minimum bid rate Deposit facility rate
Start of MP End of MP1st MRO 2nd MRO 3rd MRO 4th MRO
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Rubric
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3. Open market credit operations
Main refinancing operation, MRO (1w)
Long-term refinancing operations, LTRO (3m)
Fine tuning operations (o/n -1w)
2. Standing facilities
Marginal lending Deposit
1. Minimum reserve requirement Monetary policy tools
Additional lending operations (O/N, VLTRO, TLTRO, EUR, USD, CHF)
4. Outright asset purchases
CBPP1-3 SMP OMT
PSPP ABSPP CSPP
Unconventional tools added during the crisis
Front-loading of liquidity provision Fixed-Rate Full Allotment Forward Guidance
Negative rates
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Rubric
www.ecb.europa.eu
Excess liquidity stands at EUR 1.9 trillion The gradual increase in excess liquidity used to be mainly driven by APP and TLTRO-II Autonomous factors developments have contributed towards a partial offset of excess liquidity growth Currently, after entering the reinvestment phase of APP, excess liquidity remains stable around EUR 1.9 trillion
Review of recent liquidity developments
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3450EUR bn
Liquidity-providing reverse transactions + MLF
Monetary Policy Portfolios Excess Liquidity Autonomous Factors
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Excess liquidity and impact on short-term money market rates
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EONIA has drifted towards the ECB Deposit Facility Rate as excess liquidity increased
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Excess liquidity MRO rate EONIA DFR rate
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Eurosystem liquidity management did not change
• Significant preferences for frontloading reserves Demand for liquidity at MRO rate normally exceeded liquidity needs
• Fixed rate full allotment and liquidity surplus brought short-term interest rates to the level of the ECB Deposit Facility Rate
• In this environment, liquidity demand function is driven by factors not mechanically related to liquidity needs benchmark allotment less relevant
• MRO benchmark is negative (i.e. excess liquidity)
• Focus is on excess liquidity analysis, e.g. on distribution of excess liquidity
But liquidity management processes and forecasting techniques did not change
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Rubric
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Future liquidity developments
What will influence the level of excess liquidity going forward?
Fixed Rate Full Allotment - Standard tenders will be conducted as FRFA ‘for as long as necessary, and at least
until the end of the last reserve maintenance period starting in March 2021’
APP reinvestments - the Governing Council intends to continue reinvesting, in full, the principal payments
from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Autonomous Factors developments may continue to offset excess liquidity growth - Government deposits likely to remain elevated in current market conditions - Banknotes likely to be impacted by financial developments
TLTRO-II voluntary early repayments - Voluntary early repayments of funds borrowed in TLTRO-II may exert downward
pressure on excess liquidity levels
TLTRO-III - Take-up in TLTRO-III (commencing in September 2019) will impact excess liquidity
levels
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Questions ?
Thank you for your attention!
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