Monetary Policy

Monetary policy instruments

The Eurosystem uses a number of monetary policy instruments approved by the Governing Council of the European Central Bank to achieve its monetary policy objectives. These instruments steer short-term interest rates, manage the liquidity situation in the banking system, as well as signal the general stance of monetary policy.

The Eurosystem’s monetary policy instruments are designed to be operationally efficient and consistent with the principles of a market-oriented economy. They also aim to ensure that banks are treated equally across the euro area, irrespective of their size or location. In practice, the Eurosystem’s monetary policy operations are carried out through the national central banks of the euro area. The Central Bank of Malta, therefore, is responsible for carrying out the Eurosystem’s monetary policy operations in Malta.

The Eurosystem has three standard monetary policy instruments at its disposal, which are:

  • open market operations;
  • standing facilities;
  • minimum reserve requirements.

Since the intensification of the financial crisis in September 2008, the ECB introduced a number of non-standard monetary policy measures to safeguard the primary objective of price stability and ensure that the monetary policy transmission mechanism continues to work.

In July 2013, the ECB introduced forward guidance. Through forward guidance, the Governing Council of the ECB communicates its expectations about the monetary policy stance, including the key ECB interest rates and the asset purchase programmes.