Monetary Policy Operations 

Open Market Operations

Open market operations (OMO) are monetary policy operations conducted at the initiative of the ECB. They play an important role in steering interest rates, managing the liquidity situation in the market and signaling 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.

There are three main types of open market operation:

  • Main refinancing operations
  • Longer-term refinancing operations
  • Fine-tuning operations 

Main refinancing operations

 Main refinancing operations (MRO) are regular liquidity-providing reverse transactions with a frequency and maturity of one week. The bank organises standard tenders according to a pre-specified calendar.

Longer-term refinancing operations

Longer-term refinancing operations (LTRO) are liquidity-providing reverse transactions and normally have a maturity of three months. They are executed by the NCBs on the basis of standard tenders and according to a pre-specified calendar. LTROs aim to provide counterparties with additional longer-term refinancing. As a rule, the Eurosystem does not send interest rate signals to the market by means of these operations.

Fine-tuning operations

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. They will normally be executed through quick tenders or bilateral procedures.

Standing Facilities 

Standing facilities, in contrast to OMOs, are conducted at the initiative of eligible credit institutions. They aim to provide and absorb overnight liquidity, signal the general monetary policy stance and bound overnight market interest rates. Two standing facilities are administered by the Bank:

  • Marginal lending facility. Counterparties can use the marginal lending facility to obtain overnight liquidity from the Bank 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 Bank. The interest rate on the deposit facility normally provides a floor for the overnight market interest rate.