Wednesday, August 6, 2014

ROLE OF CENTRAL BANK-GCEO ECONOMICS NOTES

ROLE OF CENTRAL BANK
The primary objective of the ECBs monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.The operational framework of the Eurosystem consists of the following set of instruments: 

Open market operations

Open market operations play an important role in steering interest rates, managing the liquidity situation in the market and signalling the monetary policy stance.

Standing facilities

Standing facilities aim to provide and absorb overnight liquidity, signal the general monetary policy stance and bound overnight market interest rates. Two standing facilities, which are administered in a decentralised manner by the NCBs, are available to eligible counterparties on their own initiative.

 Minimum reserve requirements

The intent of the minimum reserve system is to pursue the aims of stabilising money market interest rates, creating (or enlarging) a structural liquidity shortage and possibly contributing to the control of monetary expansion.

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