Liquidity Conditions and Monetary Policy Operations from November 5, 2025 to February 10, 2026

This report, authored by Christian Lizarazo and Kristian Tötterman, is part of the ECB Economic Bulletin, Issue 2/2026. It provides a detailed analysis of the liquidity conditions within the Eurosystem along with the relevant monetary policy operations that occurred during the seventh and eighth reserve maintenance periods of the year 2025, spanning from November 5, 2025, to February 10, 2026.

Overview of Liquidity Trends

Throughout this review period, the average excess liquidity present in the banking system of the euro area has experienced a notable decline. This contraction in liquidity provision can be primarily attributed to a decrease in the Eurosystem’s asset holdings under both the asset purchase programme (APP) and the pandemic emergency purchase programme (PEPP). The reduction began with the cessation of APP reinvestments in early July 2023, followed by the conclusion of PEPP reinvestments at the end of December 2024. An additional factor involved was a slight uptick in net autonomous factors which also played a role in decreasing excess liquidity.

Liquidity Needs Assessment

The average daily liquidity requirements faced by the euro area banking system, calculated as the combined total of net autonomous factors and reserve necessities, rose by €18 billion, reaching a total of €1,306 billion during the review period. This upward movement was largely influenced by a reduction in liquidity-providing autonomous factors, coupled with a rise in liquidity-absorbing autonomous factors. Furthermore, the minimum reserve requirements added to the liquidity needs, increasing by €1 billion to a total of €169 billion.

Factors Affecting Liquidity

Over the review period, liquidity-providing autonomous factors saw an overall decline of €8 billion, driven chiefly by a €16 billion drop in net assets denominated in euros. This decline was, in part, due to a rise in euro-denominated non-monetary policy deposits which absorb liquidity, only partially counterbalanced by an increase in non-monetary policy investments. On a different note, net foreign asset holdings displayed an increase of €8 billion.

Conversely, liquidity-absorbing autonomous factors increased by €9 billion during this timeframe, largely due to a rise in the circulation of banknotes. Traditionally, banknote demand witnesses a surge during the holiday period due to heightened household spending. The overall circulation of banknotes escalated by €15 billion, culminating in a total of €1,607 billion. Additionally, there was a decrease in government deposits held with the Eurosystem, declining by €9 billion to €102 billion, attributed to a general slowdown in government issuance towards the year’s end.

Monetary Policy Instruments and Their Impact

During the review period, the average liquidity supplied via monetary policy instruments decreased by €125 billion, settling at €3,776 billion. This decline was primarily linked to the reduction in outright portfolios held by the Eurosystem.

Specifically, the liquidity created through outright monetary policy holdings dipped by €128 billion to €3,752 billion as a direct result of ongoing maturities of APP and PEPP holdings without any reinvestments. On the other hand, liquidity provided through credit operations experienced a modest rise, increasing by €3 billion to reach €24 billion. The average outstanding volume of main refinancing operations (MROs) experienced an increase of approximately €4 billion, hitting €13 billion, influenced by heightened participation at the year-end. In contrast, the average amount of three-month longer-term refinancing operations (LTROs) dipped by €1 billion to €11 billion.

Excess Liquidity Analysis

Excess liquidity, defined as the reserves held by banks above the mandatory minimum reserve requirements and the recourse to the deposit facility, decreased by €143 billion during this review, totaling €2,470 billion. This metric represents the difference between the overall liquidity injected into the banking system through monetary policy and the liquidity banks require to cover their minimum reserves. Since reaching a peak of €4,748 billion in November 2022, excess liquidity has been on a consistent downward trend.

Interest Rate Developments

Throughout the review duration, the Governing Council maintained stable rates for three key ECB interest rates, including the deposit facility rate which influences the overall monetary policy direction. Specifically, the rates for the deposit facility, MROs, and marginal lending facility remained constant at 2.00%, 2.15%, and 2.40% respectively.

During this period, the average euro short-term rate (€STR) modestly increased, yet remained negative in relation to the deposit facility rate. On average, the €STR registered at 7 basis points below the deposit facility rate, marking a slight reduction from the previous observation of 7.5 basis points during the fifth and sixth maintenance cycles of 2025. Similarly, the average euro area repo rate, as indicated by the RepoFunds Rate Euro index, stayed in close proximity to the deposit facility rate.

Conclusion

This detailed assessment highlights significant changes in liquidity conditions and the operational landscape of the Eurosystem. It underscores the impacts of strategic decisions made regarding asset purchase programs and reflects on the broader implications for monetary policy and liquidity management within the euro area.