The Governing Council of European Central Bank (ECB) has decided this Wednesday to introduce changes in the operational framework for the execution of monetary policy, in order to ensure that «it continues to be adequate during the process of normalization of the Eurosystem's balance sheet,» the organization indicated in a statement. These changes will affect the How central bank liquidity will be provided in a context of gradual reduction of excess liquidity in the banking system, although the bank considers that «it will continue to be significant in the coming years.» «The objective of the operational framework is guide money market interest rates in the short term towards levels closely in line with the monetary policy decisions of the Governing Council», assures the entity. After the application of these modifications, the Government Council will continue to guide the orientation of monetary policy by adjusting the interest rate of the deposit facility. Besides, liquidity will be provided «using a wide variety of instruments«, and the main financing operations (OPF), which for the organization will have «a fundamental role in meeting the liquidity needs of credit institutions», will continue to be executed through auction procedures at a fixed interest rate with full allotment against delivery of a range of collateral assets. However, the differential between the interest rate on the main financing operations and the interest rate applicable to the deposit facility will be reduced to 15 basis points effective September 18, 2024. «This narrower spread will encourage bidding in weekly operationsso that short-term money market interest rates will likely be at levels close to the deposit facility rate, and will limit the potential for volatility in short-term money market interest rates,» explains In December 2022, the Governing Council announced a review of the operational framework to guide short-term interest rates in the euro area. The decisions adopted this Wednesday establish Fundamental principles and parameters for implementing monetary policy and providing central bank liquidity. «I am pleased to announce that the Governing Council has approved these amendments to its operational framework, which reflect the important changes in the financial system and monetary policy in recent years. The framework will ensure that the execution of our monetary policy continues to be effective, solid, flexible and efficient in the future during the process of normalization of our balance sheet,» highlights the president of the ECB, Christine Lagarde. Looking to the future, a review of key parameters of the framework in 2026 «on the basis of the experience acquired in the past period», although the ECB could do so sooner «if necessary».