What are Monetary policy operations?
Main operations of monetary policy
In order to achieve the goal of ensuring price stability and increase the efficiency of the interest rate channel of the transmission mechanism, the Central Bank conducts monetary policy operations.
Monetary operations are directed to the management of short-term interest rates by regulating the general liquidity of the banking system.
The Central bank carried out these operations on the basis of the interest corridor mechanism and ensure the formation of money market interest rates in a corridor of ± 2% compared to the policy rate.
Operational mechanism of Central Bank
|
Goal |
Operations |
Conditions |
Interest rate |
Task |
|
Liquidity provision operations |
REPO auctions |
On 7 days |
Policy rate |
Provision of temporary shortage of liquidity in the banking system |
|
SWAP auctions |
On 7 days |
|||
|
Overnight REPO |
For 1 day |
Policy rate |
Provision of the daily liquidity shortage in the banking system |
|
|
Overnight SWAP |
||||
|
Liquidity absorbing operations |
Overnight deposit operations |
Overnight |
Policy rate |
Absorbing daily excess of liquidity in the banking system |
|
Deposit auctions |
On 7 days |
Policy rate |
Absorbing temporary excess of liquidity in the banking system |
|
|
Central bank’s bonds |
Up to 12 months
(schedule based) |
Policy rate |
Absorbing structural excess of liquidity in the banking system |
Liquidity provision operations
1. REPO auctions – is a bilateral transaction in which the Central Bank buys securities from credit institutions and then sells them after a certain period of time at a predetermined price.
The central bank sets the repo rate - at the level of the policy rate - which is the price for the funds raised in a repo transaction. The subject of the purchase and sale is government securities and bonds of the Central Bank.
2. FX SWAP auctions – is a bilateral currency exchange transaction (spot transactions) with the condition to reverse the transaction after a certain time at a predetermined rate (forward transactions).
When calculating the forward rate, the policy rate of the central bank is used as the value of the national currency. The subject of the transaction is the foreign currency.
3. Overnight REPO and Overnight FX SWAP operations are standing facilities, one-day transactions at a rate of "policy rate + 2%".
Liquidity absorbing operations
1. Central bank’s bonds – issuable securities of the Central Bank, issued in electronic form and entitling the holder of the bond to receive income in the prescribed manner.
2. Deposit auctions – Central Bank operations to attract money from commercial banks for deposits at the policy rate. These auctions are carried out in the form of “fixed rate – full allotment” from March, 2022.
3. Overnight deposit - standing facilities, one-day transactions at a rate of "policy rate - 2%".
