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Monetary policy

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Monetary policy concerns the decisions taken by central banks to influence the cost and availability of money in an economy. In the case of the European Central Bank (ECB), the main objective of monetary policy is to maintain price stability, which is defined as year-on-year inflation of below, but close to, 2% over the medium term (as measured by the Harmonised Index of Consumer Prices).

The ECB’s most important monetary policy tool is control of the key interest rates. Changes to the key rates affect the interest rates offered by commercial banks for borrowing or depositing money, which influences consumer spending and business investment decisions.

If the normal channels for implementing monetary policy are disrupted, central banks (including the ECB) may also adopt non-standard monetary policy measures, such as asset purchase programmes, in order to restore the proper transmission of monetary policy.

Source:  EUR Lex Glossary

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