FRANKFURT Jan 16 During the normalisation
period in liquidity conditions, money-market rates could become
more volatile and rise gradually toward the main refinancing
rate, the European Central Bank said on Thursday.
"Any transition period, as the liquidity provision
normalises, would lead to greater volatility, which could imply
that short-term rates could become less closely anchored to the
ECB deposit facility rate," the ECB said in an article of its
"This would make expectations about future money market
rates more complex to interpret, as several factors, such as
future liquidity developments and uncertainty, would be priced
in overnight index swaps, in addition to expectations about the
future path of policy rates."
The article also said that a significant drop in banks'
demand for excess reserves was expected to take place later in
(Reporting by Sakari Suoninen and Eva Taylor)