Every central bank makes decisions about what to do with the money it creates and manages. Its goal is to keep prices stable and inflation low (around 2 percent) while maximizing employment. It does this by changing how much money there is in the economy, influencing whether people and companies spend, save or invest. It does not make laws or regulate the economy directly, instead acting on what is called a “dual mandate” from Congress: price stability and maximum employment.
Typically, when CPI is above target and output is weak, central banks lower interest rates in order to boost demand for goods and services by encouraging firms and households to borrow and spend. This has the effect of stimulating production and boosting growth.
To achieve this goal, a central bank needs a variety of policy tools. They might expand their balance sheets by buying assets, such as commercial paper or mortgage-backed securities, to support financial stability or buy equities to increase share prices and boost investment. They might also take direct measures to help specific credit markets, such as by lending to corporate borrowers or by buying debt issued by troubled governments.
The ECB’s decisions are based on a meeting-by-meeting assessment of the latest economic data, the dynamics of underlying inflation and the strength of monetary policy transmission. This information is combined with an in-depth analysis of risks and opportunities by the Governing Council’s economic departments. In addition to the written transcripts of the meetings and policy briefings, the Bank has published a summary of deliberations online since January 2023, about two weeks after each decision. This is in line with the Bank’s commitment to transparency in line with the Warsh Review of 2014.