Monetary policy glossary

A “narrow” monetary aggregate that comprises currency in circulation and overnight deposits.

An "intermediate" monetary aggregate that comprises M1 plus deposits with an agreed maturity of up to two years and deposits redeemable at notice of up to three months.

A “broad” monetary aggregate that comprises M2 plus repurchase agreements, money market fund shares and units as well as debt securities with a maturity of up to two years.

A procedure aimed at broadening the surveillance of economic policies of the EU Member States to include a detailed and formal framework to prevent and correct excessive imbalances and to help the EU Member States affected to establish corrective action plans before divergences become entrenched. The MIP is based on Article 121(6) of the Treaty on the Functioning of the European Union. The first step of this surveillance procedure of the EU is the Alert Mechanism Report. The MIP has a preventive and a corrective arm. The latter is made operational by the excessive imbalance procedure. See also Alert Mechanism Report, excessive imbalance procedure

A regular open market operation executed by the Eurosystem (in the form of a reverse transaction) for the purpose of providing the banking system with the amount of liquidity that the former deems to be appropriate. Main refinancing operations are conducted through weekly standard tenders (in which banks can bid for liquidity) and normally have a maturity of one week. See also open market operation, reverse transaction

The period over which compliance with reserve requirements is calculated. The ECB publishes a calendar of the reserve maintenance periods at least three months before the start of each year. The maintenance period begins on the settlement day of the first main refinancing operation following the meeting of the Governing Council at which the monthly assessment of the monetary policy stance is pre-scheduled. Under special circumstances, the published calendar may be amended, depending, among other things, on changes in the schedule of Governing Council meetings. See also minimum reserves

A procedure related to the application of variation margins, implying that if the value, as regularly measured, of the underlying assets falls below a certain level, the central bank requires counterparties to supply additional assets (or cash). Similarly, if the value of the underlying assets, following their revaluation, were to exceed the amount owed by the counterparties plus the variation margin, the counterparty may ask the central bank to return the excess assets (or cash) to the counterparty. See also repurchase agreement, variation margin

The interest rate at which the total tender allotment is exhausted.

A standing facility of the Eurosystem which counterparties may use to receive overnight credit from a national central bank at a pre-specified interest rate against eligible assets. See also standing facility

The interest rate on the Eurosystem's marginal lending facility which banks may use for overnight credit from a national central bank that is part of the Eurosystem.

The swap point quotation at which the total tender allotment is exhausted. See also swap point

The practice of revaluing securities and financial instruments using current market prices. See also haircut, variation margin

A class of debt instruments within a liquidity category of tier one assets or within a liquidity category of tier two assets, the residual maturity of which is within a certain range of values, e.g. the three to five-year maturity bucket.

The date on which a monetary policy operation expires. In the case of a repurchase agreement or swap, the maturity date corresponds to the repurchase date.

The limit on the largest acceptable bid from an individual counterparty in a tender operation. The Eurosystem may impose maximum bid limits in order to avoid disproportionately large bids from individual counterparties. See also tender procedure

The upper limit to the interest rate at which counterparties may submit bids in variable rate tenders. Bids at a rate above the maximum bid rate announced by the ECB are discarded. See also tender procedure

A country that is a member of the European Union.

See monetary financial institution (MFI)

The lower limit of the amount to be allotted to individual counterparties in a tender operation. The Eurosystem may decide to allot a minimum amount to each counterparty in its tender operations. See also tender procedure

The lower limit, expressed in percentage terms, of the ratio of bids at the marginal interest rate to be allotted in a tender operation. The Eurosystem may decide to apply a minimum allotment ratio in its tender operations. See also tender procedure

The lower limit to the interest rates at which counterparties may submit bids in variable rate tenders. See also tender procedure

See macroeconomic imbalance procedure (MIP)

See money market fund (MMF)

Currency in circulation plus certain liabilities of monetary financial institutions (MFIs) that are relatively liquid, such as overnight deposits, and are held by euro area residents (excluding MFIs and the central government sector). See also M1, M2, M3

One part of the integrated analytical framework that forms the basis for the Governing Council’s monetary policy deliberations. It examines monetary and financial indicators, focusing on the operation of the monetary policy transmission mechanism, in particular via the credit, bank lending, risk-taking and asset pricing channels. This facilitates the identification of possible changes or impairments in transmission. The monetary and financial analysis also provides for a systematic evaluation of the longer-term build-up of financial vulnerabilities and imbalances and their possible implications for the tail risks to output and inflation. Moreover, it assesses the extent to which macroprudential measures mitigate possible financial stability risks that are relevant from a monetary policy perspective.

See base money (monetary base)

Financial institutions which together form the money-issuing sector of the euro area. These include the Eurosystem, resident credit institutions (as defined in EU law) and all other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credit and/or invest in securities. The latter group consists predominantly of money market funds.

Action undertaken by a central bank using the instruments at its disposal in order to achieve its objectives (e.g. maintaining price stability).

A statement issued after each monetary policy meeting of the Governing Council explaining its monetary policy decisions through an integrated narrative in line with the ECB’s analytical framework and drawing on economic and monetary and financial analysis.

The ECB’s strategy for achieving the primary objective of maintaining price stability in the euro area. It includes monetary policy instruments, indicators and intermediate targets, and also sets out how to take into account other considerations without prejudice to price stability. It serves two main purposes: it provides a coherent analytical framework mapping actual or expected developments into policy decisions and it serves as a vehicle for communicating with the public.

The process through which monetary policy decisions, e.g. the interest rate decisions taken by the Governing Council in the case of the euro area, affect the economy in general and the price level in particular.

A presentation that distinguishes the external transactions of the MFI sector from those of the non-MFI sector. The analysis of the external counterpart of M3 contributes, together with that of the domestic counterparts, to the assessment of M3 developments.

A monetary policy strategy aimed at maintaining price stability by focusing on the deviations of money growth from a pre-announced target.

A key economic relationship that represents the demand for money balances by non-monetary financial institutions (non-MFIs). The demand for money is often expressed as a function of prices and economic activity, which serves as a proxy for the level of transactions in the economy, and certain interest rate variables, which measure the opportunity costs of holding money.

The market in which short-term funds are raised, invested and traded, using instruments which generally have an original maturity of up to one year.

A collective investment undertaking that primarily invests in money market instruments and/or other transferable debt instruments with a residual maturity of up to one year, and/or that pursues a rate of return that approaches the interest rates on money market instruments.

An auction at which the allotment interest rate (or price/swap point) equals the interest rate offered in each individual bid.