The monetary policy decisions of the Governing Council of the ECB are based on a comprehensive analysis of the risks to price stability.
The analysis is conducted on the basis of two complementary perspectives on the determinants of price developments, referred to as the “two pillars”: the economic analysis and the monetary analysis.
The economic analysis
The economic analysis monitors current economic, financial and price developments and assesses their impact on inflation.
The economic and financial variables that are the subject of this analysis include: developments in overall output; aggregate demand and its components; fiscal policy; capital and labour market conditions; developments in the exchange rate of the euro, the global economy and the balance of payments.
As part of the economic analysis, ECB and Eurosystem staff macroeconomic projections are prepared and published four times a year.
The monetary analysis
The monetary analysis monitors overall liquidity conditions, based on developments in a wide range of monetary aggregates, including Μ3 growth, as well as developments in credit to enterprises and households.
In contrast with the economic analysis that focuses on a short-term horizon, the monetary analysis provides insights into whether the price stability objective is achieved over the medium term.
Based on a cross-check of the indications stemming from the economic analysis with those from the monetary analysis, the Governing Council of the ECB assesses the risks to price stability and determines its monetary policy stance accordingly.