Monetary policy instruments
In order to ensure price stability, we, together with other Eurosystem central banks, have a set of monetary policy instruments, consisting of open market operations, standing facilities and minimum reserves.
Open market operations
Open market operations is the main instrument that national central banks (NCBs) use to provide funds to market participants (usually banks), collect deposits, buy or sell securities or carry out other operations. Within the Eurosystem, open market operations are initiated by the European Central Bank (ECB) and conducted by the NCBs (usually with banks and other credit institutions operating in a respective country). Open market operations play an important role in Eurosystem monetary policy for the purposes of steering interest rates, managing the liquidity situation in the market and signalling the stance of monetary policy.
Main refinancing operations are regular liquidity-providing transactions with a weekly frequency and a one-week maturity. These operations are executed in a decentralised manner by NCBs as standard tenders. Main refinancing operations play a pivotal role in pursuing the objectives of the Euosystem’s open market operations.
Longer-term refinancing operations are monthly liquidity-providing transactions with a three-month maturity. The Eurosystem may also execute non-regular long-term operations with longer maturities.
The Eurosystem carries out the expanded asset purchase programme by using outright transactions. Under this programme, the ECB and NCBs purchase on a monthly basis public sector securities, covered and corporate bonds, as well as asset-backed securities.
In reacting to various market conditions, the Eurosystem may also use other operations. The list of open market operations is presented in the table below.
Standing facilities are monetary policy instruments, allowing banks or other credit institutions to borrow funds from a central bank or deposit funds overnight at the central bank.
Counterparties can use the marginal lending facility to obtain overnight liquidity from the NCBs against eligible assets. The interest rate on the marginal lending facility normally provides a ceiling for the overnight market interest rate.
Counterparties may use the deposit facility to deposit funds overnight at the NCBs. The interest rate on the deposit facility normally provides a floor for the overnight market interest rate.
The Eurosystem’s minimum reserve system applies to the euro area credit institutions. Application of minimum reserves helps stabilising money market interest rates and creating (or enlarging) a necessary structural liquidity shortage. In order to pursue the aim of stabilising interest rates, the Eurosystem’s minimum reserve system enables institutions to make use of averaging provisions. Compliance with the reserve requirement is determined on the basis of the institution’s average daily reserve holdings over the maintenance period (indicative calendar of reserve maintenance periods). Institution holdings of required reserves are remunerated at the marginal interest rate of the Eurosystem’s main refinancing operations.
|Monetary policy operations||Type of transaction||Maturity||Frequency||Procedure|
|Liquidity provision||Liquidity absorption|
|Open market operations|
|Main refinancing operations||Reverse transactions||–||1 week||Weekly||Standard tender|
|Longer-term refinancing operations||Reverse transactions||–||3 months||Monthly||Standard tender|
Reverse transactionsForeign exchange swaps
Foreign exchange swaps
Issuance of ECB debt certificates
Up to 12 months
|Marginal lending facility||Reverse transactions||–||Overnight||Access at the discretion of counterparties|
|Deposit facility||–||Deposits||Overnight||Access at the discretion of counterparties|
|Banking system liquidity stabilisation||The reserve base consists of credit institutions liabilities, except liabilities to the Bank of Lithuania and other credit institutions that are subject to the Eurosystem’s minimum reserve system. The reserve requirement rate is 1 per cent. Zero reserve requirement ratio is applied to: 1) deposits and equivalent liabilities with an original maturity of over 2 years or deposits redeemable at notice over 2 years; 2) debt securities issued with an original maturity of over 2 years; 3) repos.|