The attempt was made to achieve this reserve target mainly through money market operations with various maturities of one year or less.
Theoretically, this measure, which led to an expansion of the Bank’s balance sheet (or the monetary base), was supposed to affect the financial and capital markets through the following: (1) the portfolio rebalance effect (lowering the risk premiums of financial assets that are imperfect substitutes for the monetary base); and (2) the signaling effect (lowering the expectations for the future path of short-term interest rates), as indicated in Chart 4.