Monetary policy strategy describes the general approach adopted by central banks to safeguard their primary objective – in the Eurosystem this is price stability. The Eurosystem’s monetary policy strategy comprises two key elements. The first element is a quantitative definition of price stability, which aims to maintain inflation below, but close to 2%. The second element is formed by the two-pillar approach (monetary and economic analysis of the risks to price stability). The Eurosystem’s monetary policy strategy provides a framework for explaining monetary policy decisions to the general public in a clear and transparent manner. This makes it easier to understand the response pattern of monetary policy to economic developments and to assess the general monetary policy stance over the medium term. It also helps to stabilise private sector expectations and to reduce fluctuations on the financial markets.
In January 2020, the ECB launched a review of its monetary policy strategy. This strategic review encompasses, in particular, the quantitative formulation of price stability, the monetary policy toolkit, the two-pillar strategy as well as communication policy. This process is to involve all the stakeholders.