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 – there are  four types composed of main refinancing operations, longer-term refinancing operations, fine-tuning operations, and structural operations;
  • standing facilities – there are two types: the marginal lending facility and the deposit facility;
  • minimum reserve requirements – the minimum amount of deposits which credit institutions in the euro area are obliged to hold in accounts with their central banks.

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. The Governing Council of the ECB communicated that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.