Interest rate policy

The Eurosystem strives to attain its price stability objective by changing the short-term interest rates in accordance with this objective. To this end, the Governing Council of the ECB, the policy-making body of the Eurosystem, sets the key interest rates for the euro area and thereby steers the demand for, and supply of, central bank liquidity.

In its meetings every six weeks, the Governing Council of the ECB sets the following interest rates:

• The interest rate on the main refinancing operations (main refinancing rate):
  The main refinancing rate is the interest rate at which banks may refinance themselves. Defined as a minimum bid rate up to 2008, it has since then been a fixed rate at which banks may borrow the required liquidity from the Eurosystem.
• The interest rates on the deposit facility and on the marginal lending facility (deposit rate and marginal lending rate):
  The deposit rate is the interest rate at which banks may make deposits with the Eurosystem. The marginal lending rate is the interest rate banks have to pay for overnight credit from a national central bank that belongs to the Eurosystem.

The interest rates on these two standing facilities (deposit facility and marginal lending facility) define the corridor within which the overnight interest rate can fluctuate. The main refinancing rate plays an important role in signaling the stance of monetary policy to the money markets. Financial market agents may, as a rule, expect the Eurosystem to manage the supply of liquidity such that the is close to the main refinancing rate.

The main instruments the Eurosystem uses to steer money market interest rates are as follows:

• Open market operations
• Standing facilities
• Minimum reserves