Framework guidance introduced
The ECB has made its monetary policy framework more transparent since 2023, laying out its reaction function based on the inflation outlook, risks, underlying inflation dynamics and transmission strength.
Rate hikes since June
Since June, the Governing Council raised key ECB interest rates by 50 basis points, lifting the deposit facility rate from 2% to 2.5% to ensure inflation returns to the 2% target.
Shock nature shapes response
The optimal policy response depends on a shock's effect on projected inflation rather than its type. The shock's nature determines the speed of returning inflation to target.
Focus on underlying inflation
The ECB emphasizes underlying inflation measures, which contain more information about medium-term headline inflation and reduce risks from energy price volatility.
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