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Monetary policy framework

Monetary policy refers to the central bank’s decisions that affect the price and availability of money in the economy. These decisions are adjusted to the economic outlook and the pursuit of an inflation target over the medium term.

On 8 July 2021 the Governing Council of the ECB approved its new monetary policy strategy, which adopts a symmetric inflation target of 2% over the medium term. This target is symmetric, which means that it considers both negative and positive deviations of inflation from the target to be equally unfavourable. When the economy is close to the zero lower bound, particularly strong, or long-term monetary policy measures are needed to prevent negative deviations from the inflation target from stabilizing. This may, inter alia, mean a temporary period during which inflation is slightly above its target.

The ECB’s key interest rates remain the primary monetary policy instrument. Other instruments, such as forward guidance, asset purchases, and longer-term refinancing operations, which over the last ten years have helped ease constraints of the zero lower bound, will remain an integral part of the ECB’s toolbox and will be used as appropriate.