Monetary policy instruments

Maintaining price stability is the primary objective of monetary policy. In order to achieve that 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, which means that interest is payable on  (the main refinancing operationsrate for the required reserves and on the deposit facility rate for excess reserves,)[1] 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.  The Eurosystem lends that sum of money 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 used some newimplemented several non-standard monetary policy instrumentsmeasures, such as i.e. asset purchase programmes and forward guidance, to complement the regular operations of the Eurosystem.


[1] A two-tier system for the remuneration of reserves was introduced from the end of October 2019 in which part of the excess reserves which euro area banks hold with the Eurosystem is exempt from the negative interest rate on the deposit facility and remunerated at 0%.