Germany: Bundesbank Monthly Report: Initial experience with the new monetary policy framework and the Bundesbank’s contribution to liquidity management by the Eurosystem

In 2002 the Eurosystem carried out a thorough efficiency analysis of its monetary policy instruments and presented various suggestions for operational improvements for discussion in a public consultation procedure. One particular aim was to avoid underbidding in the main refinancing operations, this being undesirable from a monetary policy point of view. Taking account of the results of the analysis as well as the comments and suggestions made by market participants, the Governing Council of the ECB decided in January 2003 to make the reserve maintenance periods more flexible and to shorten the maturity of the main refinancing operations from two weeks to one. In March 2004 the monetary policy instruments were changed to reflect the new minimum reserve and tender regime. This article depicts and analyses the experience of working with the new monetary policy framework through four reserve maintenance periods. The changeover went smoothly; the more flexible reserve maintenance period and the shorter maturity of the main refinancing operations fulfilled expectations during the review period. The article also looks at the Bundesbank's contribution to liquidity management by the Eurosystem and the expanded publication of liquidity data related to the main refinancing operations executed in the new monetary policy framework