Open market operations

The Eurosystem conducts open market operations to manage the liquidity available in the market, targeting an amount that balances the demand for and supply of liquidity at the interest rate level the Eurosystem deems appropriate.

Open market operations are monetary policy operations executed on the initiative of central banks (as opposed to standing facilities), which are available to counterparties at their own initiative. Open market operations, which may take different forms, are the Eurosystem’s main tool for liquidity management.

The Eurosystem usually conducts

  • credit operations against eligible assets as collateral, which are concluded for a
  • limited period. The credit institutions must pay interest on the funds obtained, and this rate is determined in a
  • tender procedure.

The Eurosystem’s most important open market operations

  • Main refinancing operations
    Main refinancing operations (MROs) normally provide the bulk of liquidity required by the banking system. They generally have a maturity of one week and are conducted on a weekly basis. The European Central Bank (ECB) decides the overall amount of liquidity that will be made available to credit institutions (which may also be referred to as counterparties) that may submit bids for the amount of funds required by them. The interest rate results from the bids, with the participating banks obliged to bid at minimum the main refinancing rate. This way, MROs also play a pivotal role in steering the money market interest rates.
  • Longer-term refinancing operations
    On a monthly basis, the Eurosystem executes longer-term refinancing operations (LTROs) with a three-month maturity. These operations are aimed at providing longer-term liquidity to the banking system. They also help keep down the liquidity volumes in the weekly MROs. In the case of LTROs, the Eurosystem acts as a “rate taker,” i.e. it does not prescribe any minimum or maximum bid rates.
  • Fine-tuning operations
    Fine-tuning operations are open market operations with differing maturities the Eurosystem carries out whenever necessary to smooth the effects of unexpected liquidity fluctuations.
  • Fixed-term deposits
    Fixed-term deposits are used to absorb liquidity from the market. The Eurosystem offers banks to place interest-bearing fixed-term deposits with the national central bank in the euro area country in which the counterparty is established. Here too, the interest rate may be determined via a tender procedure, with the ECB first serving the bids with the lowest interest rates.
  • Outright purchases
    In outright purchases, the Eurosystem buys eligible assets, such as securities, outright on the market. Such purchases were first used as monetary policy instruments in the wake of the economic and financial crisis.

The framework for monetary policy implementation comprises further instruments and procedures, which are not in use at present, however.

Monetary policy instruments

During the economic and financial crisis, the Eurosystem conducted additional open market operations (so-called nonstandard measures) and changed the way funds were made available.


The Eurosystem’s monetary policy framework enables a broad range of counterparties to participate in monetary policy operations. Counterparties to Eurosystem monetary policy operations must fulfill certain eligibility criteria applicable throughout the euro area:

  • Eligible counterparties must hold minimum reserves under the Eurosystem’s minimum reserve system.
  • They are subject to harmonized European Union/European Economic Area supervision by national authorities (for financially sound institutions, exceptions may apply).
  • They must be financially sound.
  • They must fulfill all the operational criteria specified in the relevant contractual or regulatory arrangements applied by their NCB (or by the ECB) so as to ensure the efficient conduct of Eurosystem monetary policy operations.

More than 6,000 credit institutions are resident in the euro area, less than half of which fulfill the operational criteria for participation in monetary policy operations. However, the number of counterparties that actually participate in open market operations is normally much lower than the number of eligible counterparties.


All Eurosystem credit operations must be collateralized. This way the Eurosystem is doubly protected against financial loss:

  • The counterparty is obliged to pay, and
  • the Eurosystem may sell the collateral in case of the counterparty’s default.

The Eurosystem applies a set of risk control measures to ensure the value of the collateral:

  • It maintains a list of eligible assets,
  • it applies quality requirements and requires minimum credit ratings, and
  • it applies valuation haircuts by subtracting a certain percentage (haircut) from the market value of the asset used as collateral.