Introduction

Participation

The monetary policy framework strives to ensure the participation of a broad range of counterparties. Only institutions subject to minimum reserves may have access to the standing facilities and participate in open market operations based on standard tenders. For outright transactions, no restrictions are placed a priori on the range of counterparties.

For details, see:

Open market operations

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

Five types of instruments are available to the Eurosystem. The most important instrument is reverse transactions, which are applicable on the basis of repurchase agreements or collateralised loans. The Eurosystem may also make use of outright transactions, issuance of debt certificates, foreign exchange swaps and collection of fixed-term deposits.

Open market operations are initiated by the ECB, which decides on the instrument and on the terms and conditions. It is possible to execute open market operations on the basis of standard tenders, quick tenders or bilateral procedures.

Four types of open market operations

Open market operations can differ in terms of aim, regularity and procedure.

• Main refinancing operations are regular liquidity-providing reverse transactions with a frequency and maturity of one week. They are executed by the NCBs on the basis of standard tenders and according to a pre-specified calendar. The main refinancing operations play a pivotal role in fulfilling the aims of the Eurosystem's open market operations and normally provide the bulk of refinancing to the financial sector.
  
  
• Longer-term refinancing operations are liquidity-providing reverse transactions that are regularly conducted with a monthly frequency and a maturity of three months. Longer-term refinancing operations that are conduced at irregular intervals or with other maturities, e.g. the length of one maintenance period, six months, twelve months or thirty-six months are also possible. They are executed by the NCBs on the basis of standard tenders and according to a pre-specified calendar.
  These operations aim to provide counterparties with additional longer-term refinancing. As a rule, the Eurosystem does not intend to send signals to the market by means of these operations and therefore normally acts as a rate taker. On some occasions and under exceptional market circumstances the ECB has also conducted longer-term refinancing operations at a fixed rate (i.e. the Eurosystem did not act as a rate taker).
  
  
• Fine-tuning operations can be executed on an ad hoc basis to manage the liquidity situation in the market and to steer interest rates. In particular, they aim to smooth the effects on interest rates caused by unexpected liquidity fluctuations. Fine-tuning operations are primarily executed as reverse transactions, but may also take the form of outright transactions, foreign exchange swaps and collection of fixed-term deposits.
  The instruments and procedures applied in the conduct of fine-tuning operations will be adapted to the types of transactions and the specific objectives pursued in performing the operations. Fine-tuning operations will normally be executed by the NCBs through quick tenders or bilateral procedures. The Eurosystem may select a limited number of counterparties to participate in fine-tuning operations.
  
  
• Structural operations can be carried out by the Eurosystem through reverse transactions, outright transactions and issuance of debt certificates. These operations will be executed whenever the ECB wishes to adjust the structural position of the Eurosystem vis-à-vis the financial sector (on a regular or non-regular basis).
  Structural operations in the form of reverse transactions and issuance of debt instruments will be carried out by the NCBs through standard tenders. Structural operations in the form of outright transactions will be executed through bilateral procedures.

 See the section Open market operations
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Standing facilities

Standing facilities aim to provide and absorb overnight liquidity, signal the general monetary policy stance and bound 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.

Marginal lending facility

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.

Deposit facility

Counterparties can use the deposit facility to make overnight deposits with the NCBs. The interest rate on the deposit facility normally provides a floor for the overnight market interest rate.

 See the section Standing facilities
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Minimum reserves

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

The intent of the minimum reserve system is to pursue the aims of stabilising money market interest rates, creating (or enlarging) a structural liquidity shortage and possibly contributing to the control of monetary expansion.

The reserve requirement of each institution is determined in relation to elements of its balance sheet. In order to pursue the aim of stabilising interest rates, the Eurosystem's minimum reserve system enables institutions to make use of averaging provisions. This implies that compliance with the reserve requirement is determined on the basis of the institutions' average daily reserve holdings over a maintenance period of about one month. The reserve maintenance periods start on the settlement day of the main refinancing operation (MRO) following the Governing Council meeting at which the monthly assessment of the monetary policy stance is pre-scheduled. The required reserve holdings are remunerated at a level corresponding to the average interest rate over the maintenance period of the main refinancing operations of the Eurosystem.

 See the section Minimum reserves
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Overview

Overview on Eurosystem open market operations and standing facilities