Monetary policy decisions
We use a set of monetary policy tools to steer inflation towards our 2% target. These tools influence both the amount and cost of loans that people and companies can get. We use these tools to influence financing conditions and the level of economic activity in the euro area which in turn affect inflation.Monetary policy decisionsSchedule of Governing Council meetingsIn detail: how are interest rate decisions passed on to the economy and prices?
Key interest rates
Our primary monetary policy instrument is the set of ECB policy rates. The Governing Council of the ECB sets three rates.
- The interest rate on the main refinancing operations. In these operations banks can borrow funds from the ECB against collateral on a weekly basis at a pre-determined interest rate.
- The rate on the deposit facility, which banks may use to make overnight deposits at a pre-set rate lower than the main refinancing operations rate.
- The rate on the marginal lending facility, which offers overnight credit to banks at a pre-set interest rate above the main refinancing operations rate.
The rate on the deposit facility and the rate on the marginal lending facility define a floor and a ceiling for the overnight interest rate at which banks lend to each other. This creates an interest rate corridor for money markets.Current and past key interest rates
Other monetary policy tools
Before the global financial crisis, we mainly conducted monetary policy by setting key interest rates.
Since the financial crisis, the ECB has expanded its set of policy instruments. This has allowed us to influence financing conditions faced by people and companies in difficult times when the malfunctioning of the financial system damaged the transmission mechanism of monetary policy. During these periods, short-term interest rates approached their “effective lower bound”, i.e. the level below which lowering them would no longer increase the level of economic activity. To ensure price stability amid these challenges, we have adapted our toolbox to incorporate new tools, including:
- offering banks as many central bank loans as they need, against collateral, at a fixed interest rate;
- setting negative interest rates, which encourage banks to lend at low rates so that people and businesses can borrow cheaply;
- offering long-term loans to banks, including loans at very favourable rates, on the condition that banks lend this money on to people and businesses (targeted longer-term refinancing operations – TLTROs);
- purchasing private and public financial assets;
- providing “forward guidance”, where we make clear our intentions for future monetary policy.
These additional instruments have served us well and will remain part of our toolbox. They give our monetary policy more space to act against the risk of low inflation or deflation.
Find out more about our strategy
The aim of the ECB’s strategy review was to make sure our monetary policy strategy is fit for purpose, both today and in the future.The outcome of our strategy review
Monetary policy instruments
To help keep prices stable, we need to have the right tools available. That is why we have introduced new monetary policy instruments in recent years.Our monetary policy instruments and the strategy review