2023/Q3 Article 08. Spread between the euro short-term rate (€STR) and the deposit facility rate

2023/Q3 Article 08. Spread between the euro short-term rate (€STR) and the deposit facility rate

Series: Economic Bulletin.

Author: Yasmina Santalla Pérez, Laura García Ramos, M.ª Carmen Castillo Lozoya and José M.ª Arregui Gil.

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2023/Q3 Article 08. Spread between the euro short-term rate (€STR) and the deposit facility rate (494 KB)

Summary

Rationale

This article analyses the factors that are contributing to the widening of the spread between the euro short-term rate (€STR) and the deposit facility rate, with a view to assessing monetary policy transmission in the Eurosystem.

Takeaways

  • The key factors that explain the behaviour of this spread are the expansion of the Eurosystem’s balance sheet and the change in the monetary policy stance.
  • The pass-through of the recent interest rate hikes to money market rates has been effective and cannot explain the widening of the spread.
  • Once the rate hiking cycle comes to an end, the contraction in the Eurosystem’s balance sheet can be expected to curb or even reverse the trend observed in the spread.
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