What is monetary policy?

10 July 2015

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 below, but close to, 2% over the medium term. This in turn helps it support general EU economic policies aiming at full employment and economic growth.

In times of prolonged low inflation and low interest rates, central banks may also adopt non-standard monetary policy measures, such as asset purchase programmes.