Monetary policy implementation
Monetary policy relates to the central bank decisions that influence the prices and the availability of money in the economy.
In the euro area the most important decisions of the Governing Council of the ECB usually relate to ECB interest rates. Their level affects the interest rates that commercial banks charge their customers for loans and savings. The banks lend money from the central bank, for which reason the price of this money is the key to the setting of interest rates in the economy. The mechanism via which monetary policy decisions affect, primarily via interest rates, consumption, saving and investment in the economy, and the general level of prices, is known as the transmission mechanism.
The key interest rates of the Eurosystem monetary policy are: the interest rate on main refinancing operations, the rate on the deposit facility, and the rate on the marginal lending facility.
Decisions with regard to monetary policy implementation are taken by the Governing Council at its monetary meetings, which are generally held every six weeks. Monetary policy decisions and interest rate decisions are published on the ECB website.
The Eurosystem implements monetary policy trough the monetary policy instruments that are offerd to banks. These instruments consists of various operations that are important in managing the liquidity of the banking system. They usually involve standard short-term liquidity-providing and liquidity-absorbing operations, but in times of need the Eurosystem may adopt non-standard measures with longer-term operations and securities purchases. Through the standard operations the Eurosystem targets neutral liquidity (it provides banks with as much liquidity as they need for their current requirements), while through the non-standard operations it tries to meet its additional objectives (e.g. reducing uncertainty, lowering the level of long-term interest rates, encouraging lending).
In the future, the Eurosystem will incorporate climate change considerations in its monetary policy. On 4 July 2022, the ECB published further steps in this area of work. In line with the climate change action plan, the measures will be taken in corporate bond purchases, collateral framework, disclosure requirements and risk management. The measures will aim to reduce financial risk related to climate change on the Eurosystem’s balance sheet, encourage transparency, and support the green transition of the economy. All measures will be regularly reviewed to check that they are fit for purpose and aligned with the objectives of the Paris Agreement and the EU’s climate neutrality objectives.