Explainer - How does monetary policy work?

The best contribution monetary policy can make to economic growth and job creation is to ensure prices are stable.

This is why Eurosystem’s primary objective is to maintain price stability. Specifically, this means a rate of inflation – the level at which prices rise – of below, but close to, 2% in the medium term. By setting market interest rates – the price of money, the Eurosystem affects economic activity and, in turn, 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, the Central Bank of Ireland contributes to monetary policy decisions and to the assessment of economic and monetary developments.