Dual interest rates and the transmission of monetary policy

The recent experience in the euro area with dual interest rates, that is, central bank funding at rates below the level at which central bank reserves are remunerated, showed that such a tool can constitute a new form of monetary accommodation. On top of supporting bank credit, central bank funding with dual interest rates enables an easing of bank lending conditions without the increased risk appetite that a standard rate cut might bring about, especially if considered after a prolonged period of low or negative interest rates.