Treasurers place premium on liquidity as rates rise
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Treasurers place premium on liquidity as rates rise

Banks and corporates are taking a variety of approaches to mitigating the impact of rising interest rates, quantitative tightening and economic uncertainty on the availability of liquidity.

Illustration: iStock

Any prolonged period of higher interest rates means that banks must monitor declining deposits carefully, as depositors seek higher-yielding alternatives elsewhere.

Rate increases in the eurozone have changed the balance of liquidity in the market, with liquidity left in current accounts during the period of negative rates starting to be used in other products, including term deposits, savings accounts with better rates, money market funds and life insurance.

Laurent Cote, Crédit Agricole

“While term deposits and savings accounts are in the bank balance sheet, funds and insurance are not, which impacts liquidity,” explains Laurent Cote, Crédit Agricole group treasurer. “Excess liquidity decreased with the end of TLTRO [targeted longer-term refinancing operations], and economic uncertainty has impacted the cost of liquidity, with an excess of caution from US and Asian investors with regards to European risk due to the proximity of the conflict in Ukraine.”

While we are likely reaching the peak of the interest-rate cycle, the process of quantitative tightening has only just started – which means that for any level of nominal rates, the price of liquidity will be going up.

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