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The ECB’s monetary policy strategy provides a comprehensive framework within which decisions on the appropriate level of short-term interest rates are taken. It is based on some general principles that aim to ensure a successful conduct of monetary policy.
The ECB’s monetary policy strategy comprises
- a quantitative definition of price stability, and
- a two-pillar approach to the analysis of the risks to price stability.
The external communication of the strategy reflects the diversified approach to monetary policy that the ECB has adopted for its internal decision-making.
Quantitative definition of price stability
The first element of the ECB’s strategy is a quantitative definition of price stability. The ECB’s Governing Council has defined price stability as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.
Price stability is to be maintained over the medium term.
The Governing Council has clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.
In order to best serve its objective of maintaining price stability, the ECB, like any other central bank, needs to thoroughly analyse economic developments.
The ECB's approach to organising, evaluating and cross-checking the information relevant for assessing the risks to price stability is based on two analytical perspectives, referred to as the "two pillars": economic analysis and monetary analysis. They form the basis for the Governing Council's overall assessment of the risks to price stability and its monetary policy decisions.