The dislocation in the usual relationship between short-term rates is illustrated by Chart 1, which shows developments in EONIA and EURIBOR rates, short-term MFI lending rates and the BBB-rated non-financial corporate bond yield since the start of EMU.
Chart 1 suggests that in the most recent period during the turmoil, bank lending rates departed from their usual co-movement vis-à-vis EONIA.5 More formal empirical pass-through results suggest that despite the tensions in the unsecured money market and the resulting widening of the EURIBOR-EONIA spread up until October 2008, euro area banks so far seem to be continuing to adjust their short-term retail rates to changes in the term money market rates (see Charts 2 and 3).6 Thus the persistence of money market tensions is hampering the smooth transmission of monetary policy.