The Eurosystem’s monetary policy strategy


The framework for a central bank’s monetary policy decisions is defined by its monetary policy strategy, which specifies monetary policy objectives, the instruments available for the implementation of these objectives as well as the indicators which form the basis for monetary policy decisions.


The primary goal of the Eurosystem’s monetary policy is to maintain price stability, i.e. an inflation rate – as measured by the Harmonised Index of Consumer Prices (HICP) – of below, but close to, 2% throughout the euro area over the medium term.

  • The Eurosystem’s monetary policy strategy is intended to provide a clear and transparent framework for communicating monetary policy decisions and the underlying considerations to the public with a view to building confidence and stabilizing financial market expectations.
  • It is supposed to clearly describe the instruments used to reach objectives. It should be forward looking and have a medium-term orientation.
  • It should ensure that decision-making bodies are provided with the necessary information and analyses.
  • It should not envisage mechanical monetary policy reactions to changes in individual indicators, but should provide a clearer overall picture as a broad variety of indicators is monitored.
  • Moreover, the strategy should make monetary policy implementation easier to assess and hence support accountability.


The Governing Council of the ECB, the policy-making body of the Eurosystem, sets the key interest rates for the euro area to ensure price stability over the medium term.

To this end, the Governing Council of the ECB must

  • interpret economic developments,
  • assess what risk they imply for price stability,
  • consider how interest rate decisions are passed on to the economy.

Indicators (two-pillar approach)

The Eurosystem pursues a two-pillar approach of monetary policy making, which ensures that, in forming its forward-looking and preventive monetary policy decisions, the Governing Council of the ECB evaluates all relevant information and analyses.

To best serve its objective of maintaining price stability, the Eurosystem regularly assesses the risks to price stability. In organizing, evaluating and cross-checking relevant information, it applies two analytical perspectives, which are referred to as the “two pillars”: economic analysis and monetary analysis.

Economic analysis
Economic analysis focuses mainly on the assessment of current economic and financial developments and the implied short- to medium-term risks to price stability. The indicators subject to economic analysis include, for example:

  • future developments in overall economic output,
  • capital and labor market conditions,
  • a broad range of price and cost indicators as well as
  • exchange rate developments.

All these indicators help the Eurosystem assess the dynamics of real economic activity and the likely development of prices at shorter horizons, while accounting for the interplay between supply and demand in the goods, services and factor markets.

Monetary analysis
Monetary analysis reflects the robust relationship between monetary growth and inflation, which tend to move in the same direction over the medium to long run. This widely accepted relationship provides a firm and reliable anchor for the conduct of monetary policy, helping discern trends in inflation beyond the horizons typically associated with conventional inflation forecasts. Monetary analysis also helps underpin the medium-term orientation of the Eurosystem’s monetary policy.