Monetary policy implementation


Monetary policy serves to steer money market interest rates with the aim of safeguarding price stability. Under exceptional circumstances, monetary policymakers adopt additional nonstandard measures to ensure that their interest rate policy is transmitted effectively to the economy.

The most important monetary policy tool consists of controlling (very) short-term money market interest rates. Via the transmission mechanism, the level of interest rates impacts on aggregate demand and hence on price developments.

In implementing monetary policy, central banks use specific instruments and procedures to stabilize money market interest rates at the level they deem appropriate. In short: By defining the conditions for providing central bank money to national banking systems, the Eurosystem steers short-term money market rates.

Under exceptional circumstances, it might not suffice to change the interest rate to meet the objective of preserving price stability. In such cases, central banks may use additional monetary policy instruments, so-called nonstandard measures, to achieve their price stability objective.