Monetary Policy

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. They are initiated by the European Central Bank (ECB) and are conducted against collateral. There are four types of open market operations, which differ in terms of objective, regularity and procedure.

  • Main refinancing operations (MROs) are conducted on a weekly basis with a maturity of one week. They are normally executed by national central banks through bids and according to a pre-specified calendar. In normal times, these operations provide the bulk of liquidity to the financial sector and play a crucial role in fulfilling the objectives of the Eurosystem's open market operations. In October 2008 the ECB introduced a system of full allotment whereby all bids placed under this facility were met at a fixed rate announced by it.
  • Longer-term refinancing operations (LTROs) are conducted with a monthly frequency and a maturity of three months. They aim to provide counterparties with additional, longer-term refinancing. LTROs are also conducted at irregular intervals or with other maturities if exceptional circumstances warrant. In recent years, the ECB has indeed conducted a number of LTROs with maturities of more than three months and applied the full allotment procedure. All LTROs are executed by national central banks on the basis of standard tenders and according to a pre-specified calendar. These operations assumed particular importance during the global financial crisis which began in late 2007.
  • Fine-tuning operations can be conducted on an ad hoc basis to smooth the effects on interest rates caused by unexpected liquidity fluctuations.
  • Structural operations can be conducted whenever the ECB wishes to adjust the liquidity position of the Eurosystem vis-à-vis the financial sector.

As part of the non-standard measures, the Eurosystem conducted targeted longer-term refinancing operations (TLTROs) that provided financing to credit institutions for periods of up to four years. They offered long-term funding at attractive conditions to banks in order to further ease private sector credit conditions and stimulate bank lending to the real economy.