Open Market Operations
Open market operations play an important role in Eurosystem monetary policy in steering interest rates, managing the liquidity situation in the market and signaling the monetary policy stance. Open market operations are initiated by the ECB, which also decides on the instrument to be used and on the terms and conditions for its execution. Of the range of instruments available to the Eurosystem for the conduct of these transactions, the two currently in use are reverse transactions and outright transactions. The NCBs conduct these operations in their jurisdictions. In Slovakia, Národná banka Slovenska conducts them as tender operations with domestic counterparties and under asset purchase programmes with a wider range of counterparties.
The liquidity allotted to counterparties is granted against eligible collateral. In the light of the conditions in the interbank market, in 2008 the Eurosystem changed to a fixed-rate full allotment policy for tender operations (whereby the central bank satisfies counterparties’ bids in full at a fixed rate of interest) and broadened the range of maturities of tender operations. The fixed-rate full allotment policy has remained in place to date.
Standard monetary policy operations
Main refinancing operations (MROs)
Regular liquidity-providing reverse transactions conducted with a frequency and maturity of normally one week. They are executed in a decentralised manner by the NCBs on the basis of standard tenders and according to an indicative calendar for the Eurosystem’s regular tender operations. MROs play a pivotal role in fulfilling the aims of the Eurosystem’s open market operations and normally provide the bulk of refinancing to the financial sector.
Longer-term refinancing operations (LTROs)
Liquidity-providing reverse transactions with a longer maturity than MROs. Regular LTROs have a maturity of three months and are conducted each month by the Eurosystem NCBs on the basis of standard tenders in accordance with the indicative calendar on the ECB’s website. The Eurosystem may also conduct non-regular longer-term operations, with a maturity of more than three months. Longer-term refinancing operations are aimed at providing monetary policy counterparties with additional longer-term refinancing.
Non-standard monetary policy measures
Targeted and non-targeted refinancing operations
Targeted longer-term refinancing operations (TLTROs)
In addition to its regular standard tender operations, the Eurosystem has introduced three series of TLTROs that provide financing to credit institutions for periods of up to four years. Together with the standard operations, they ensure the provision of sufficient liquidity to the euro area banking sector. In particular the third series of TLTROs (TLTRO III) has proved an attractive source of financing for banks, supporting their lending to non-financial corporations and households.
TLTRO III consists of a series of ten targeted longer-term refinancing operations, each with a maturity of three years, starting in September 2019 at a quarterly frequency. Borrowing rates in these operations can be as low as 50 basis points below the average interest rate on the deposit facility over the period from 24 June 2020 to 23 June 2022, and as low as the average interest rate on the deposit facility during the rest of the life of the respective TLTRO III operation.
Pandemic emergency longer-term refinancing operations (PELTROs)
To support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop, the Eurosystem is conducting a series of non-targeted PELTROs. The PELTROs consist of eleven additional refinancing operations; the first was conducted in May 2020, and the last four were conducted during 2021 on a quarterly basis. The PELTROs are being conducted as fixed rate tender procedures with full allotment. The interest rate is 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective PELTRO.
Tender operations in other currencies
Tenders in US dollars
The Eurosystem offers US dollar liquidity to its monetary policy counterparties through quick tenders conducted on a weekly basis with a 7-day maturity. They are carried out as fixed-rate tender procedures with full allotment
Asset purchase programmes
Asset purchase programme (APP)
The ECB’s asset purchase programme (APP) is part of a package of non-standard monetary policy measures that was initiated in mid-2014 to support the monetary policy transmission mechanism and provide the amount of policy accommodation needed to ensure price stability. The ECB and the Eurosystem national central banks purchase eligible securities from monetary policy counterparties through individual transactions. The amount of monthly purchases is decided by the ECB’s Governing Council.
The APP consists of a several programmes that differ according to the type of securities purchased thereunder: