Ensuring price stability and combating inflation
The primary objective of the monetary policy of the Eurosystem, as decided by the European Central Bank, is to ensure price stability. This mandate is defined in Article 127 of the amended Treaty on European Union (or Maastricht Treaty). As a member of the European System of Central Banks (ESCB), the Banque de France helps fulfill the ECB’s mandate and implement the common monetary policy.
Since July 2021, the quantitative definition of price stability is based around a 2% inflation target over the medium term. This inflation target is symmetrical, meaning that both negative and positive deviations are equally undesirable. This 2% rate helps safeguard the purchasing power of money and support economic growth.
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Further information
2%
In July 2021, the ECB announced that a medium-term inflation target of 2% would enable it to achieve its objective of price stability more effectively and to provide an anchor for inflation expectations
Implementing monetary strategy
To achieve its primary objective of maintaining price stability, the Eurosystem has a range of monetary policy instruments at its disposal. Some of these comprise "standard” measures while others are "non-standard" measures.
Standard monetary policy tools
The principal monetary policy tool consists of steering key interest rates for the Eurosystem in liaison with banks, which in turn determine the lending rates that banks charge to economic agents (businesses, households, etc.). Steering short-term interest rates, i.e. the price of money, is at the heart of standard monetary policy.
The Eurosystem uses a number of instruments to steer interest rates:
Refinancing operations
Refinancing operations provide banks with regular liquidity and help steer short-term interest rates.
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Minimum reserves
Minimum reserves generate a demand for money on the part of banks, which encourages them to participate in the Eurosystem's refinancing operations or buy on the interbank market.
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Standing facilities
Banks that meet the Eurosystem's financial solidity requirements may obtain loans or deposit liquidity overnight with their national central bank.
Find out moreNon-standard monetary policy measures
In addition to standard monetary policy instruments, the Eurosystem has also implemented non-standard monetary policy measures aimed in particular at stimulating lending in the economy and improving the conditions for the transmission of monetary policy.
These non-standard measures were introduced from 2008 onwards to counter the effects of the financial crisis, and are based on asset purchase programmes and targeted longer-term refinancing operations (TLTROs).
- Asset purchase programmes
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Who decides monetary strategy?
Monetary strategy decisions for the Eurosystem as a whole are taken by the ECB Governing Council. This body comprises the governors of the national central banks of euro area member countries and the six members of the ECB Executive Board, including the President and Vice-President of the ECB.
What role does the Banque de France play in monetary strategy?
As a member of the ESCB, the Banque de France is involved in formulating monetary policy and preparing decisions. It assesses monetary conditions, prepares macroeconomic projections and analyses monetary policy transmission to the real economy and to prices. This work is rounded out by business surveys and monetary, financial and balance of payments statistics.