The interest rate the European Central Bank pays commercial banks on overnight deposits parked at the Eurosystem. As the floor of the ECB's three-rate corridor, it anchors the lower bound of money-market rates and, under a floor system, effectively sets the policy stance for short-term euro funding.
How it works
Banks holding reserves above requirements deposit them overnight with the Eurosystem and are remunerated at the DFR. It is the lowest of the ECB's three key rates — sitting below the main refinancing operations (MRO) rate and the marginal lending facility rate — and forms the floor of the interest-rate corridor. In an excess-liquidity environment, the DFR rather than the MRO becomes the de facto policy rate that overnight market rates (€STR) gravitate toward.
Why it matters now
Since the September 2024 framework review, the ECB has narrowed the MRO–DFR spread to 15bp and signalled that excess reserves will be remunerated at the DFR from 17 June 2026, cementing a demand-driven floor system as quantitative tightening drains the structural liquidity surplus.
Example
After the June 2024 cut, the ECB's deposit facility rate moved from 4.00% to 3.75% — the first reduction of the easing cycle — with the MRO at 4.25% and the marginal lending facility at 4.50%, illustrating the three-rate corridor with the DFR as its floor.
Frequently asked
- What is the ECB deposit facility rate?
- The deposit facility rate is the interest the European Central Bank pays commercial banks on overnight reserves parked at the Eurosystem. It is the lowest of the ECB's three key rates and forms the floor of the interest-rate corridor
Glossary · the corridor
The corridor is the band between a central bank's standing lending rate (ceiling) and deposit rate (floor), within which the overnight money-market rate trades. In a corridor system the policy rate sits in the middle; the width and symmetry of the band shape interbank price discovery and reserve scarcity.
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- How does the deposit facility rate differ from the MRO rate?
- The deposit facility rate is the floor banks earn on overnight deposits, while the main refinancing operations (MRO) rate is the cost of weekly central-bank borrowing in the middle of the corridor. Since the September 2024 review the MRO sits just 15bp above the DFR. In an excess-reserve regime the DFR, not the MRO, sets the effective policy stance.
- Why does the deposit facility rate matter now?
- The deposit facility rate is the ECB's effective policy rate as quantitative tightening drains the liquidity surplus. From 17 June 2026 excess reserves will be remunerated at the DFR, cementing a demand-driven floor system. The narrowed 15bp MRO–DFR spread is designed to pull banks back to refinancing operations as structural liquidity shrinks.
- When was the ECB deposit rate negative?
- The ECB deposit facility rate was negative from June 2014 to July 2022, reaching a low of -0.50% in September 2019. The ECB was the first major central bank to push a key rate below zero, charging banks to park excess reserves to combat low inflation. It returned to 0.00% in July 2022 as inflation surged.
- How does the deposit facility rate affect €STR?
- The deposit facility rate sets the gravitational floor for €STR, the euro short-term rate. In an excess-liquidity environment overnight unsecured rates trade close to the DFR, typically a few basis points
Glossary · 25bp / bp
A basis point (bp) is one-hundredth of a percentage point (0.01%); 25bp equals 0.25 percentage points, the conventional increment of a single central-bank rate move. Policymakers quote rate changes, yields, and spreads in basis points to avoid the ambiguity of percentage-of-a-percentage phrasing.
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