The BCL carries out operations on financial markets (open market operations). This means in practice that it grants credits against securities provided as collateral by the counterparties of the BCL, i.e. credit institutions of the Luxembourg financial centre. The interest rate for the main short-term credits is the most important monetary policy signal. The Eurosystem also offers to credit institutions the possibility of longer-term credits and, also, a day-to-day loan or deposit system.
The only regulatory instrument used by the BCL is the imposition on credit institutions of mandatory reserve requirements which must be deposited on a BCL account. By increasing or lowering the reserve requirements, the ECB and the NCBs have an influence on the credit institutions refinancing needs from their NCB.
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