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.
main refinancing operation
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
maintenance period
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
margin call
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
marginal interest rate
The interest rate at which the total tender allotment is exhausted.
marginal lending facility
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
marginal lending rate
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.
marginal swap point quotation
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
variation margin
maturity bucket
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.
maturity date
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.
maximum bid limit
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
maximum bid rate
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
Member State
A country that is a member of the European Union.
monetary financial institution (MFI)
minimum allotment amount
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
minimum allotment ratio
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
minimum bid rate
The lower limit to the interest rates at which counterparties may submit bids in variable rate tenders. See also
tender procedure
monetary aggregate
Currency in circulation plus outstanding amounts of certain liabilities of monetary financial institutions (MFIs) that have a relatively high degree of liquidity and are held by non-MFI euro area residents outside the central government sector. The Governing Council has announced a reference value for the growth of M3. See also
reference value for monetary growth
monetary analysis
One pillar of the European Central Bank’s framework for conducting a comprehensive analysis of the risks to price stability, which forms the basis for the Governing Council’s monetary policy decisions. The monetary analysis helps to assess medium to long-term trends in inflation, in view of the close relationship between money and prices over extended horizons. The monetary analysis takes into account developments in a wide range of monetary indicators, including M3, its components and counterparts, notably credit, and various measures of excess liquidity. See also
economic analysis
monetary base
base money (monetary base)
monetary financial institution (MFI)
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.
monetary policy strategy
The general approach to the conduct of monetary policy. The monetary policy strategy of the ECB comprises a quantitative definition of the primary objective of price stability and an analytical framework based on two pillars - economic analysis and monetary analysis - which forms the basis of the Governing Council's overall assessment of the risks to price stability and of its monetary policy decisions. It also provides the framework for explaining monetary policy decisions to the public.
monetary policy transmission mechanism
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.
monetary presentation of the b.o.p.
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.
monetary targeting
A monetary policy strategy aimed at maintaining price stability by focusing on the deviations of money growth from a pre-announced target.
money demand
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.
money market
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.
money market fund
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.
multiple rate auction (American auction)
An auction at which the allotment interest rate (or price/swap point) equals the interest rate offered in each individual bid.