Open market operations

Open market operations play an important role in the monetary policy of the Eurosystem for the purposes of steering short-term interest rates, managing liquidity in the market and signalling the stance of monetary policy. Five types of instruments are available to the Eurosystem for the conduct of open market operations. The most important instrument is the reverse transaction (applicable on the basis of repurchase agreements or collateralised loans). The Eurosystem may also use outright transactions, the issuance of debt certificates, foreign exchange swaps and the collection of fixed-term deposits.

Open market operations are initiated by the European Central Bank (ECB), which also decides on the instrument to be used and on the terms and conditions for its execution. These operations can be executed on the basis of standard tenders, quick tenders or bilateral procedures. With regard to their aims, regularity and procedures, the Eurosystem’s open market operations can be divided into four categories:

• The main refinancing operations are liquidity-providing reverse transactions with a weekly frequency and a maturity of one week. These operations are executed by the national central banks (NCBs) on the basis of standard tenders. The main refinancing operations play a pivotal role in pursuing the objectives of the Eurosystem’s open market operations and aim at providing the bulk of refinancing to the financial sector. Since June 2000, the ECB has published a forecast of the average autonomous liquidity factors each time a main refinancing operation is announced. In March 2004, at the same time as the entry into force of Eurosystem’s new operational framework for monetary policy, the ECB started publishing the benchmark allotment amount of main refinancing operations on the day of the announcement and on the allotment day, as well as an update of the forecast of the average autonomous liquidity factors on the date of allotment.

• The longer-term refinancing operations are liquidity-providing reverse transactions with a monthly frequency and a maturity of normally three months. These operations are aimed at providing counterparties with additional longer-term refinancing and are executed by the NCBs on the basis of standard tenders. In these operations, the Eurosystem does not, as a rule, intend to send signals to the market and therefore normally acts as a rate taker. Fine-tuning operations are executed on an ad hoc basis with the aim of managing the liquidity situation in the market and steering interest rates, in particular in order to smooth the effects on interest rates caused by unexpected liquidity fluctuations in the market.

• Fine-tuning operations are primarily executed as reverse transactions, but can also take the form of outright transactions, foreign exchange swaps and the collection of fixed-term deposits. The instruments and procedures applied in the conduct of fine-tuning operations are adapted to the types of transactions and the specific objectives pursued in the operations. Fine-tuning operations are normally executed by the NCBs through quick tenders or bilateral procedures. The Governing Council of the ECB decides whether, under exceptional circumstances, fine-tuning bilateral operations may be executed by the ECB itself.

• In addition, the Eurosystem may carry out structural operations through the issuance of debt certificates, reverse transactions and outright transactions. These operations are 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 the issuance of debt instruments are carried out by the NCBs through standard tenders. Structural operations in the form of outright transactions are executed through bilateral procedures. The main and the longer-term refinancing operations are executed in accordance with the pre-announced calendar for the Eurosystem’s regular tender operations.

For more detailed information, please refer to the appropriate chapter of the document “The Implementation of Monetary Policy in the Euro Area” or the ECB’s website.