Role of the Eurosystem’s refinancing operations in interest rate steering will grow as liquidity declines

Central bank reserves in the euro area banking system still currently total approximately EUR 2,000 billion. “The abundant liquidity continues to keep money market rates close to the ECB’s deposit facility rate. But with liquidity continuing to decline as expected, banks and other financial market participants will have to be ready to operate actively in the money market. Banks will also need to be ready to borrow from the Eurosystem’s refinancing operations as part of their liquidity management,” says Member of the Board of the Bank of Finland Tuomas Välimäki. 

New longer-term structural refinancing operations for banks will be offered at a later stage, supplementing the current week-long main refinancing operations (MROs) and the three-month longer-term refinancing operations (LTROs). A structural bond portfolio will also be established. “The details of the structural refinancing operations and structural portfolio have not yet been decided, but liquidity will be provided though a broad mix of instruments. This will ensure the tools to act flexibly in different monetary policy and financial market environments,” explains Välimäki. 

The MROs and the three-month LTROs will continue to be conducted as fixed rate tenders will full allotment. A broad range of collateral will be accepted in all refinancing operations. “The main refinancing operations will play a key role in steering money market rates. Not every fluctuation in interest rates will require a response if the money market is functioning normally and monetary policy transmission is not impaired,” says Välimäki. 

The Bank of Finland has today published three articles that focus on monetary policy implementation. The first of these examines the steering of short-term money market rates and the money market’s growing role as liquidity declines. The second article looks at the factors to be considered in designing future structural refinancing operations and a structural bond portfolio. The third article focuses on the impact of digitalisation, tokenisation and new payment systems on the demand for central bank liquidity and on the implementation of monetary policy. 

Speech by Member of the Board of the Bank of Finland Tuomas Välimäki, 14 October 2026 

Bank of Finland Bulletin website