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Monetary policy

Monetary policy concerns the decisions taken by central banks to influence the cost and availability of money in an economy. In the case of the European Central Bank (ECB), the main objective of monetary policy is to maintain price stability in the euro area, which is defined as year-on-year inflation of 2% over the medium term (as measured by the Harmonised Index of Consumer Prices). The ECB Governing Council’s commitment to the 2% inflation target is symmetric, meaning that negative and positive deviations from the target are considered as equally undesirable.

The ECB’s primary monetary policy tool is the control of the policy interest rates. Changes to the key rates affect the interest rates offered by commercial banks for borrowing or depositing money, which influences consumer spending and business investment decisions.

If the normal channels for implementing monetary policy are disrupted and/or policy rates approach their effective lower boundary, central banks (including the ECB) may also adopt non-standard monetary policy measures, such as asset purchase programmes and longer-term refinancing operations, in the pursuit of their monetary policy objective(s).

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