Varieties of monetary operating procedures: balancing monetary objectives with market efficiency

This paper reviews some of the issues confronting central banks in their choice of monetary operating instruments and techniques. As a result of efforts by governments to improve efficiency in financial systems, together with developments in financial information, computation and communication technology, central banks are having to increasingly rely on flexible operating instruments and techniques which convey in a convincing manner to market participants their near-term objectives. This has contributed to the relative decline in the importance of standing credit facilities and the greater reliance on flexible open market intervention techniques. Policy signalling and disclosure have increasingly become essential elements in short-term monetary management.