The official site of Italy's central bank

Main activities

Monetary policy

Objectives and strategy

The Eurosystem is responsible for the single monetary policy of the euro area.

The primary objective of the Eurosystem’s monetary policy is to maintain price stability in the euro area. Without prejudice to this objective, the Eurosystem supports the economic policies in the European Community with a view to contributing, among other things, to the achievement of a high level of employment and sustainable and non-inflationary growth. Among its other tasks, it also contributes to the maintenance of financial stability in the euro area.

Monetary policy decisions are taken by the Governing Council of the European Central Bank (ECB) and mainly consist of setting the key interest rates.
The ECB has quantified the definition of price stability as a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below but close to 2% in the medium term.
The reference to the medium term above all takes account of the lag in the monetary policy transmission mechanism: shorter-term measures to combat, for example, a short-term shock to international raw materials prices, would run the risk of creating additional volatility in the economy. A forward-looking orientation is also necessary in view of the impact of inflation expectations on actual inflation; the single monetary policy aims to solidly anchor inflation expectations at levels consistent with price stability.

Quantifying the definition of price stability also contributes to a further aspect of the ECB’s monetary policy strategy: by increasing the transparency of monetary policy and providing a reference framework which is easy to understand, it provides a clear and measurable yardstick against which the public can hold the ECB accountable. This renders the ECB’s policies credible, which is a precondition for forming market expectations.

The ECB bases its monetary policy decisions on two complementary analytical perspectives (referred to as the “two pillars”): economic analysis and monetary analysis. The economic analysis assesses the short to medium-term determinants of inflation, focusing on real activity and taking account of the fact that price developments over these horizons are influenced by the interplay between the supply and demand of goods, services and production factors. Account is also taken of the macroeconomic projections produced every three months alternately by Eurosystem and ECB experts. In view of the long-term connection between money and prices, the monetary analysis mainly serves as a means of cross-checking, from a medium to long-term perspective, the short to medium-term indicators stemming from the economic analysis.

The ECB pays considerable attention to communicating its assessments by means of official statements or regular publications, such as the Monthly Bulletin and the Annual Report.

Implementation of monetary policy

The implementation of monetary policy is entrusted to the Executive Board of the ECB in accordance with the decisions and guidelines adopted by the Governing Council.

The Eurosystem has a number of monetary policy instruments at its disposal in order to achieve its objectives. It conducts open market operations, offers standing facilities and requires credit institutions to hold minimum reserves on accounts with the Eurosystem.

In accordance with the principles of operational decentralization and subsidiarity established at the European level, the monetary policy operations are carried out by the Eurosystem NCBs on the basis of the necessary instructions given by the Executive Board and under uniform terms and conditions.