Andres Lipstok: Overview of Bank of Estonia’s first year of the euro Speech by Mr Andres Lipstok, Governor of the Bank of Estonia (Eesti Pank), at the presentation of Eesti Pank’s 2011 Annual Report to the Riigikogu (the Parliament of Estonia), Tallinn, 29 May 2012. *  *  *  Honourable President of the Riigikogu, honourable members of the Riigikogu, My mission today is to present you with an overview of Eesti Pank’s first year of the euro. I will first run through the activities of Eesti Pank in 2011. Then, I am going to focus on the euro area economic and monetary policy, as well as on economic developments in Estonia and the activities of the central bank against the backdrop of the euro area financial crisis. [EESTI PANK IN THE YEAR 2011] 1. 2011 was an action-packed year for Eesti Pank. First of all, the central bank had to carry out the work required for the changeover to the single currency. Second of all, the transition to the euro bestowed Eesti Pank with new duties and a greater responsibility – the central bank became an equal partner in monetary policy decision-making in the euro area. Our main task is to contribute to price stability in the euro area along with other Eurosystem central banks. From the beginning of 2011, the Governor of Eesti Pank partakes in decisions affecting not only the people of Estonia, but also the 300 million residents of the euro area.
These lie at 75 points above and 75 points below the repo rate respectively. The difference between the lending and deposit rates is sufficiently large for the banks normally to view it as more profitable to balance deficits and surpluses in their payments at the end of the day on the interbank market, rather than utilising the Riksbank's lending and deposit facilities. Both a bank with a surplus and a bank with a deficit win by depositing or borrowing in other banks at rates between the Riksbank's deposit and lending rates. The fact that the interbank rate normally lies at the centre of the corridor, i.e. close to the repo rate is because the Riksbank usually offers the banks the opportunity to borrow or deposit sufficient funds at the repo rate so that no bank will need to utilise the more expensive alternatives offered by the deposit and lending facilities. The condition for this is that the possibilities in the interbank market have been exhausted. Outstanding notes and coins and other items on the Riksbank's balance sheet mean that the banking system currently has to borrow from the Riksbank. To avoid the necessity of converting a large loan stock every day, the Riksbank every week offers the banks the possibility of borrowing via repurchase transactions with a duration of one week at the monetary policy-steered repo rate.