Explainer - How does monetary policy work?

In the euro area, the objective of monetary policy is to keep prices stable, i.e. to keep inflation at 2% over the medium term. This in turn helps it support general EU economic policies aiming at full employment and economic growth. By setting market interest rates – the price of money – the Eurosystem affects financing conditions and, in turn, economic activity and inflation. Other measures that can be taken include the Quantitative Easing, otherwise known as the Asset Purchase Programme, which sees central banks purchasing financial securities to affect interest rates and increase the money supply.

As part of the Eurosystem, Central Bank of Ireland contributes to monetary policy decisions, which are based on an integrated assessment of all relevant factors, and build on two interdependent analyses: the economic analysis and the monetary and financial analysis.