Also, it is important to understand that the interest rates at which the fine-tuning operations and the supplementary longer term refinancing operations were settled contain no information on the future monetary policy stance, since the ECB acted as a rate taker in these operations. The need to understand the difference between technical liquidity provision measures and changes to the monetary policy stance is particularly important in the current environment, since the turmoil in money markets has occurred at a time of increasing concerns about rising inflationary pressures and deteriorating outlook for inflation. In this context, misunderstandings about the purpose of our liquidity interventions might adversely affect inflationary expectations. Conclusion Let me conclude by emphasising that the recent market developments have stressed the importance for policy-makers to have access to timely and accurate information on financial developments, and to set up mechanisms that facilitate the smooth and rapid exchange of information among market participants, central banks and other authorities. The recent turmoil has also highlighted the importance of effective communication for central banks, in order to provide guidance about the principles informing their liquidity management interventions under market stress conditions, and to dispel undesirable misunderstandings about the reasons why these interventions are taken. We are only starting to draw lessons from the recent financial turmoil, but we can pretty sure that the need to fill information gaps and enhance market transparency will figure prominently among them.

And, of course, the need to communicate more frequently has also reflected the deviation from standard liquidity management practices. By extensively communicating about future refinancing operations and the general orientation of our liquidity policy, we have aimed to facilitate and accelerate the process of learning by banks about how we intend to implement monetary policy under the current conditions of market stress. Challenges for monetary policy implementation under stress As I will explain below, the current turmoil has also confronted us also with more general communication challenges, but let me first elaborate on some of the challenges that our liquidity management policy has faced during the recent turmoil. In normal times, the soundness of a central bank’s operational framework and the experience of both the central bank and market participants ensure that the implementation of monetary policy works smoothly. However, as I mentioned earlier, under stress conditions some of the principles usually guiding the implementation process may function differently. In this respect, particularly important for a central bank is the case of changes in the determinants of short-term interest rates. In normal times, the behaviour of the overnight rate is fairly well understood. In a system with reserve requirements, the possibility to average reserve holdings over a maintenance period supports a stabilization of short-term interest rates, because day-to-day fluctuations of liquidity conditions can be smoothed out over the remainder of the period.