ECB Consultant in Ahmedabad

Best ECB Consultant in Ahmedabad Gujarat and India by Mehul Thakkar and Associates. Mild consequences of modifications to minimum reserve compensation - A defining feature of the process of moving away from the ECB's previously relatively accommodating approach has been the rate and magnitude of the policy rate increase. But this rate hike, along with a wealth of paid reserves, made it necessary for the Governing Council to determine if it could achieve the same results in terms of transmission and policy stance at a lower cost to the Eurosystem.

Top ECB Consultant in Ahmedabad Gujarat and India by Mehul Thakkar and Associates. The Governing Council considered the possibility that banks may use balance sheet optimization techniques to lower the reserve base for minimum reserve calculations as one of their potential responses to the adjustment when making this decision. They could accept secured deposits or FX swaps, which are not factored into determining the reserve base, in place of unsecured deposits. These tactics have the potential to put pressure on repo and money markets, particularly during the days when MRR is determined.

Repurchase market volumes have been marginally higher throughout the minimum reserve reporting dates since July 2023 than they have been on average since 2022 (Chart 3, LHS). Nonetheless, given the general reduction in collateral scarcity, there was no discernible pricing impact. As a result, any extra flows into the repo market were fully absorbed (Chart 3, RHS), and the change in minimum reserve compensation has had little effect on the repo market.

Are repo markets about to undergo a change?

Overall, in 2023 and 2024, we have seen an improvement in the operation of the repo market and a reduction in the shortage of assets. However, because the goal of sourcing collateral continues to dominate the repo market, its nature is essentially unchanged for the time being due to the substantial level of excess liquidity that exists in the euro region. The question going forward will be whether repo markets can effectively move to a new paradigm where they serve as a productive and efficient means of allocating liquidity throughout the euro region. This is especially relevant since surplus liquidity is being reabsorbed and the Eurosystem reduces its involvement in the funding markets.