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The Operational Framework of the Monetary Policy

The Eurosystem has at its disposal a set of monetary policy instruments in order to achieve its main objective –to maintain price stability. While the monetary policy strategy determines the level of money market interest rates needed to maintain price stability, the operational framework makes it possible to achieve the rate level.

So, by using each time the appropriate set of monetary policy instruments, the ECB:

  • steers short-term money market rates by managing the liquidity situation in the money market,
  • signals its monetary policy intentions through setting its key interest rates
  • promotes operational efficiency and helps credit institutions meet their liquidity needs in a smooth manner.

The operational framework of the Eurosystem is based on a number of principles, which aim at:

  • facilitating the efficient allocation of resources of an open economy with free competition,
  • ensuring operational efficiency,
  • ensuring equal treatment of financial institutions irrespective of their size and location in the euro area,
  • safeguarding the principle of decentralization of the implementation of monetary policy within the euro area,
  • applying the principles of simplicity, transparency, and cost efficiency.

The Eurosystem monetary policy is conducted in a decentralized way: The Governing Council of the ECB make the decision and the national central banks (NCBs) are responsible for its implementation.

The Eurosystem conducts open market operations, offers standing facilities and requires credit institutions to hold minimum reserves on accounts with the Eurosystem. 



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