When inflation, i.e. the annual rate of growth in consumer prices, remains below, but close to, 2% over the medium term, the value of money is held more or less unchanged and strong purchasing power is preserved.

Price stability is the foundation for sustainable economic growth. The Eurosystem has traditionally maintained price stability by adjusting its key interest rates, which determine the costs banks face when borrowing money from or making deposits with the central bank. Currently the Eurosystem has also implemented asset purchase programmes to support its pursuit of price stability.

The Eurosystem comprises the European Central Bank (ECB) along with the national central banks of the euro area. As a member of the Eurosystem, the Bank of Finland participates in preparation of the single monetary policy, related decision-making and implementation in the euro area. Bank of Finland Governor Olli Rehn is a member of the Eurosystem's highest decision-making body, the Governing Council of the ECB.

In 2018, the ECB’s monetary policy for the euro area remained highly accommodative. The ECB held its key interest rates unchanged throughout the year.

Accommodative monetary policy supported economic growth

In 2015, the ECB Governing Council launched its *asset purchase programme, a non-standard monetary policy measure. Its purpose is to expand the money supply and thus boost economic growth and inflation.

In 2018, the Eurosystem began to reduce the monthly pace of its asset purchases. In January 2018, monthly net purchases were cut from EUR 60 billion to EUR 30 billion. In June, the Governing Council announced that, beginning from September, it would reduce its monthly net purchases from EUR 30 billion to EUR 15 billion, before ending net purchases altogether in December.

In December, the Governing Council confirmed its decision to end its net asset purchases. At the same time, it announced that it intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The ECB's monetary accommodation has contributed to the favourable growth momentum in the euro area economy and has been effectively transmitted into bank lending. The average interest rates on private-sector loans remained low, and year-on-year lending growth accelerated across loan types.

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The European Central Bank's monetary policy and its preparation in 2018