Monetary policy

What are open market operations?

Open market operations are one of the European Central Bank's (ECB) monetary policy instruments. These operations allow the ECB to steer interest rates in the economy by providing liquidity to, or withdrawing liquidity from, the market.

They are divided into four categories:

  1. The main refinancing operations (MROs) were the principal source of funding for the financial system in the euro area in the early years of the ECB (hence their name). MROs are liquidity-providing transactions with a weekly frequency and a maturity of one week. They are conducted by national central banks on the basis of standard tenders, according to a calendar published by the ECB.
  2. The longer-term refinancing operations (LTROs) are liquidity-providing transactions that have a longer duration than the MROs (usually three months). LTROs are conducted monthly by the Eurosystem on the basis of standard tenders according to the calendar published by the ECB. LTROs are aimed at providing institutions with liquidity over a longer term.
  3. Fine-tuning operations are less common open market operations. They tend to be used to provide or absorb liquidity in the financial system on an ad hoc basis to manage interest rate changes caused by unexpected liquidity fluctuations in the market. Fine-tuning operations are normally executed through quick tenders or bilateral procedures.
  4. Structural operations are transactions to provide or absorb liquidity that adjust the structural position of the Eurosystem vis-à-vis the financial sector. Structural operations can be carried out in the form of reverse transactions (repos), outright transactions (asset purchases/sales) or the issuance of ECB debt certificates through standard tenders or bilateral procedures.