Final answer:
Main Refinancing Operations (MRO) is a key policy tool used by the European Central Bank (ECB) to provide liquidity to commercial banks and influence short-term interest rates.
Step-by-step explanation:
Main Refinancing Operations (MRO) is a key policy tool used by the European Central Bank (ECB) to conduct monetary policy. It involves the ECB lending money to commercial banks in the Eurozone for a specific period of time. The main objective of MRO is to provide liquidity to banks and influence short-term interest rates in the money market.
For example, if the ECB wants to stimulate economic growth, it can reduce the interest rate charged on MRO loans, which encourages banks to borrow more and lend to businesses and consumers at lower rates. On the other hand, if the ECB wants to curb inflation, it can increase the interest rate on MRO loans, making borrowing more expensive and reducing lending activity.