Monetary policy instruments

In order to achieve its primary objective, the Eurosystem uses a set of monetary policy instruments and procedures in which the national central banks perform a key role.

In accordance with the principle of an open market economy which encourages free competition and an efficient allocation of resources, the Eurosystem operates mainly via transactions with euro area credit institutions. It does not apply any regulations such as exchange controls or credit restrictions. The reserve requirements are the only regulatory instrument. The reserves all bear interest (the main refinancing rate for the required reserves and the deposit facility rate for excess reserves) and no credit is granted on preferential terms, so that the monetary policy operating framework  does not offer any scope for implicit taxation or subsidies.

By virtue of its issuing privilege, the Eurosystem is able to manage the liquidity situation in the money market and influence money market interest rates. Broadly speaking,

the Eurosystem allocates an amount of liquidity that allows euro area credit institutions to fulfil their liquidity needs at a price that is in line with its signalled policy intentions, as reflected in the key interest rates set by the ECB.

The Eurosystem uses three categories of instruments:

1. open market operations, among which the main refinancing operations, which are weekly credit tenders with a one week maturity, play an important role.

2. standing facilities

3. minimum reserves

In addition, since 2009 the ECB has implemented several non-standard monetary policy measures, i.e. asset purchase programmes, to complement the regular operations of the Eurosystem.

  • Open market operations play an important role in steering interest rates, managing the liquidity situation in the market and signalling the monetary policy stance.

  • Standing facilities aim to provide and absorb overnight liquidity, signal the general monetary policy stance and constrain overnight market interest rates. Two standing facilities, which are administered in a decentralised manner by the NCBs, are available to eligible counterparties on their own initiative.     

  • Minimum reserves are an integral part of the operational framework of monetary policy in the euro area.

  • The expanded asset purchase programme (APP) adds the purchase programme for public sector securities to the existing private sector asset purchase programmes to address the risks of a too prolonged period of low inflation.