Following its establishment in 1998, the European Central Bank (ECB) has reviewed its monetary policy strategy in 2003, 2020–2021, and 2025.
The first review in 2003 brought greater precision to the definition of the inflation target, setting it at below, but close to, 2% over the medium term. Meanwhile, in 2020–2021, a symmetric 2% inflation target was adopted, and the monetary policy strategy was expanded to also include other issues, such as climate change and financial stability (for more information, see the ECB website); the same target was also reaffirmed in the 2025 monetary policy strategy review.
The key highlights of the 2025 monetary policy strategy review:
- the ongoing structural shifts suggest that the inflation environment will remain uncertain and potentially more volatile, with larger deviations from the inflation target in both directions, posing challenges for the conduct of monetary policy;
- to maintain the symmetry of its inflation target, the Governing Council of the ECB recognises the importance of appropriately forceful or persistent monetary policy action in response to large, sustained deviations of inflation from the target in either direction, to avoid deviations becoming entrenched through de-anchored inflation expectations;
- the primary monetary policy instrument is the set of ECB policy rates. The Governing Council may also employ other instruments, as appropriate, to steer the monetary policy stance when the policy rates are close to the lower bound or to preserve the smooth functioning of monetary policy transmission;
- the Governing Council of the ECB bases its monetary policy decisions, including the evaluation of the proportionality of its decisions and potential side effects, on an integrated assessment of all relevant factors. In particular, it takes into account not only the most likely path for inflation and the economy but also surrounding risks and uncertainty, including through the appropriate use of scenario and sensitivity analyses;
- the Governing Council of the ECB intends to assess periodically the appropriateness of its monetary policy strategy, with the next assessment expected in 2030.