Why does the Euro short-term rate (€STR) not reflect the 50 bp ECB hike?

Discussion in 'Fixed Income' started by Maverick2608, Mar 21, 2023.

  1. H2O

    H2O

    From: https://www.ecb.europa.eu/stats/fin.../euro_short-term_rate/html/eurostr_qa.en.html

    The broad scope of the €STR guarantees that the rate is a fair reflection of the overnight borrowing cost for banks in the wholesale market, in which not only banks but also a number of other different entities interact. Some of these entities may not have access to the Eurosystem monetary policy operations (because they are non-banks or are located outside the euro area), which means that the rates of the Eurosystem facilities will not strictly serve as a lower or upper bound for the rate of their transactions. As a result, such transactions may be conducted at a rate below the deposit facility rate or above the marginal lending facility rate. The €STR is intended to capture this market reality. For example, in conditions of abundant excess liquidity, the €STR would be expected to be below the deposit facility rate.
     
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