Monetary Policy

The main objective of monetary policy - price stability

The primary objective of monetary policy in the euro area is price stability, which is an important precondition for business certainty and the sustainable growth of an economy. Price stability supports investment and employment, while also increasing economic welfare. In the euro area, price stability is defined as an inflation rate of below, but close to, 2% over the medium term. 

The European Central Bank (ECB) seeks to maintain price stability through changes in  interest rates. Generally speaking, a rise in interest rates will discourage spending and should push consumer prices down as higher interest rates make it more costly for economic agents to borrow, while encouraging saving. Although with a time lag, the resulting restraint in expenditure weakens demand and thus dampens inflation.  

In addition, since 2009 the ECB has implemented several non-standard monetary policy measures, involving forward guidance and asset purchase programmes, to complement its standard monetary policy measures.