And yet, recent events in the euro area and the United States have highlighted that the current ample excess liquidity levels may not guarantee that short-term interest rates will reflect policymakers’ desired levels at all times. In the United States, short-term funding rates experienced severe upward pressure towards the end of September, which required the Federal Reserve to conduct additional liquidity-providing operations.
In the euro area, the introduction of a two-tiered reserve remuneration system triggered expectations among market participants of some, albeit limited, upward pressure on overnight rates. In my remarks this morning I would like to use these two episodes as examples for explaining why managing liquidity conditions in the post-crisis environment has become more complex.