1. Monetary policy instruments The conduct of monetary policy

2. Monetary policy instruments Interest rates Open market operations Reserve requirement Intraday credit facility Foreign exchange swaps Foreign exchange interventions

3. Interest rates (1) The principal instrument of monetary policy is the short-term interest rate (reference rate, base rate, official rate, etc.) The reference rate determines the yield obtainable on the main open market operations, influencing at the same time, the level of the short-term market rates.

4. Interest rates (2) The lombard rate determines the marginal cost of funds obtainable from the central bank. It sets the ceiling for the growth of the overnight market rate. The deposit rate determines the interest on the deposit made with the central bank. It determines the floor for the fluctuations of the overnight market rate.

6. Open market operations (1) Open market operations are used by the central bank to influence liquidity in the banking sector. Main open market operations, typically with 7-day maturity, will as a rule be contucted on a regular weekly basis. A fixed rate at the level of the reference rate will be binding during teneders.

7. Open market operations (2) In case of liquidity shortage in the banking sector, open market operations are liquidity- providing (redemtion of the central bank bills before their maturity, repo transactions) In case of liquidity surplus in the banking sector, open market operations are liquidity- absorbing (issuance of the central bank bills, reverse repo transactions)

8. Reserve requirement The basic function of the reserve requirement is to stabilise the liquidity level in the banking sector Changes in the reserve ratio depend on changes in the liquidity conditions in the banking sector

9. Intraday credit facility Intraday credit facility are both local and foreign currency loans offered by the central bank to commercial banks These loans are an important element of the clearing system, as the source of funds obtained during the operating day These are non-interest bearing loans, collateralised with securities accepted by the central bank

10. Foreign exchange swaps In case of the need for providing the banking sector with foreign currencies, the central bank may use foreign exchange swaps The foreign exchange swap consists in that the central bank purchases the local currency for foreign currencies in the spot market and, at the same time, it resells the local currency on a forward transactions basis on a specified date

11. Foreign exchange interventions The mentioned above foreign exchange swaps provide the banking sector with foreign currencies, but do not influence the exchange rate The aim of foreign exchange interventions is to create a direct impact on the exchnge rate