What is monetary policy?

10 July 2015 (updated on 25 August 2021)

Monetary policy concerns the decisions taken by central banks to influence the cost and availability of money in an economy.

In the euro area, the European Central Bank’s most important decision in this respect normally relates to the key interest rates. Any change it makes to these rates affects in turn the interest rates commercial banks charge their customers for borrowing money. In other words, the decision influences consumer spending and business investment. In the case of the ECB, the objective of monetary policy is to keep prices stable, i.e. to keep inflation at 2% over the medium term. This in turn helps it support general EU economic policies aiming at full employment and economic growth.

Our interest rates are only one of several instruments that we use for our monetary policy. In recent years we have added new instruments to our toolbox in response to big changes in the economy that have made our task of maintaining price stability more challenging.

Updated in August 2021 to reflect the outcome of the strategy review in 2020-21.