The official site of Italy's central bank

Monetary policy

According to Article 105 of the EC Treaty, price stability is the primary objective of the Eurosystem, which comprises the European Central Bank and the central banks of the Member States that have adopted the euro. The objective is pursued through the single monetary policy.

The Bank of Italy contributes to Eurosystem monetary policy decisions through the participation of the Governor in the Governing Council of the ECB. The economic analyses carried out by the Bank of Italy’s staff are an important contribution to the discussion and decision-making process in the Council and the Eurosystem’s technical committees and working groups.

The objective of monetary policy is to maintain price stability, defined by the Governing Council as keeping the harmonized index of consumer prices of the euro area below but close to 2 per cent over the medium term.

The Eurosystem pursues price stability over a medium-term horizon by moving very-short-term money market interest rates. To keep them at the level deemed appropriate, the Council uses a variety of instruments, including changes in the official rates and regulation of the quantity of reserves on the interbank market by means of open-market operations.

Important elements of the operational model adopted by the Eurosystem include standing facilities and the required reserves regime, whereby credit institutions have to hold deposits on accounts opened with the central bank.

The Governing Council’s decisions regarding official interest rates determine the conditions of credit institutions’ fund-raising. Through a complex process known as the “monetary policy transmission mechanism” these decisions are reflected, to varying degrees, in the yields of other markets (e.g. banks’ deposit and lending rates), in households’ and firms’ saving, expenditure and investment decisions and, ultimately, in the economy in general and the level of prices in particular.

The implementation of monetary policy is based on the principle of subsidiarity, under which the operations of the Eurosystem are normally carried out by the central banks of the individual participating countries.