The Eurosystem is responsible for the single monetary policy of the euro area. The main objective of monetary policy is to keep prices stable in the euro area, so that the value of money is held more or less unchanged and strong purchasing power is preserved. Monetary policy decisions are guided by the monetary policy strategy of the European Central Bank (ECB). The ECB published a new monetary policy strategy in 2021.

The Eurosystem comprises the European Central Bank and the national central banks of the euro area. As a member of the Eurosystem, the Bank of Finland participates in the preparation, decision-making and implementation of the euro area’s single monetary policy.

The Bank of Finland is responsible for implementing the Eurosystem’s monetary policy in Finland.

Price stability definition and inflation target at heart of ECB’s 2021 revised monetary policy strategy

The ECB’s monetary policy strategy states how it will maintain price stability in the euro area and what objectives it will set for its monetary policy. The strategy also specifies how the ECB’s Governing Council decides on and communicates about monetary policy.

Prior to the new strategy, a review of the ECB’s monetary policy strategy was carried out in response to the changing shape of the operating environment. The Bank of Finland was involved in the review process.

The Governing Council of the ECB published the new monetary policy strategy and statement on 8 July 2021. The principal change concerned the definition of price stability and the ECB’s inflation target.

The new strategy adopts a symmetric inflation target of 2% over the medium term. The symmetric nature of the inflation target means that the ECB’s Governing Council considers that both negative and positive deviations from this target are equally undesirable.

Revised strategy also takes into account the needs of climate change mitigation and a more diverse range of communications

Climate change and the transition towards a more sustainable economy are evident in macroeconomic indicators such as inflation, employment and investment. Climate change and the transition to a lower carbon economy also affect asset values and the risk profile on the Eurosystem balance sheet.

The ECB is increasing its analytical capacity so that it can improve the consideration of risks in its risk management work, investment activities and monetary policy operations.

For monetary policy to function well, there needs to be transparency and accountability. The ECB’s written communications on monetary policy will in future take four different forms: a press release, a monetary policy statement, the Economic Bulletin and an account of the monetary policy meeting. The ECB will also supplement these information channels with material aimed at the general public.

European Central Bank’s monetary policy remained accommodative in 2021

The main objective of monetary policy is to maintain price stability. Monetary policy decisions concern such matters as setting the key ECB interest rates that guide market rates.

The accommodative stance of monetary policy helps preserve favourable financing conditions for all sectors of the euro area economy.

The monetary policy of the ECB was used to support growth during 2021. The Eurosystem made sure that financing conditions remained favourable in the euro area by continuing most of the monetary policy operations that it had introduced in 2020 to help tackle the COVID-19 crisis.

The Eurosystem arranged longer-term refinancing operations for banks under favourable terms; retained the pandemic-related measures for easing collateral requirements for central bank credit; continued the large-scale securities purchases; and maintained the swap lines between central banks.

At its December 2021 meeting, the Governing Council of the ECB decided that net purchases under the pandemic emergency purchase programme (PEPP) will end in March 2022.

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European Central Bank revises monetary policy strategy