How will the European Central Bank control interest rates in the future?

Abstract

The European Central Bank’s (ECB) monetary policy stance is implemented through market operations and other measures that aim to steer short-term money market interest rates towards the level set by the ECB’s Governing Council. Before the global financial crisis, money market interest rates were steered close to the ECB’s main refinancing operations rate. With the implementation of quantitative easing and longer-term refinancing operations, the ECB’s overnight deposit rate has become the most important policy rate of the Eurosystem in recent years. Last December, the ECB announced that it will review how it is to control interest rates in the future. The outcome of the review will also impact the size and composition of the Eurosystem’s balance sheet in the future.