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The ECB’s assessment of its monetary policy stance is essential for the preparation of its monetary
policy decisions. That assessment aims to determine whether monetary policy is contributing to
economic, financial and monetary developments in a way that maintains price stability over the
medium term. It is one of the important inputs that are examined by the Governing Council of the
ECB whendeciding on its monetary policy.
The ECB’s response to the intensification of the financial crisis in the autumn of 2008 is a good
illustration of this process – from the assessment of the monetary policy stance to the decision
to adjust it, followed by the signalling and implementation of the appropriate stance. The ECB’s
broad-based and medium-term-oriented monetary policy strategy hasguided the design and
implementation of the monetary policy stance during the crisis. Specifically, maintaining price
stability over the medium term has required the rapid lowering of the key ECB interest rates, as well as
non-standard measures to ensure their effective transmission to the economy, with a view to tackling
the financial crisis and cushioning its impact on the real economy. Thus,the ECB has embarked on a
policy of enhanced credit support. These exceptional measures are of a temporary nature and will be
phased out gradually, progressively and in a timely manner when financial conditions improve or if
these measures begin to pose risks to the ECB’s primary objective of maintaining price stability.

1 INTRODUCTION
Good decisions rely on comprehensive information, soundanalysis and good judgement. Central banks’ decisions rely on an assessment of their monetary policy stance. That stance can be defined as the contribution made by monetary policy to economic, financial and monetary developments. Monetary policy actions affect the setting of market interest rates and prices in the economy through various channels, thereby influencing economic activity and/orinflation in a process known as “monetary
policy transmission”. Thus, the assessment of the monetary policy stance can be defined as determining whether the contribution made by monetary policy actions is appropriate in view of the central bank’s objectives. It is on the basis of its assessment of the monetary policy stance that a central bank calibrates its actions. In the case of the ECB, the primaryobjective, as assigned by the Treaty on the Functioning
of the European Union, is to maintain price stability. Thus, the Governing Council of the ECB assesses whether the impact that monetary policy is having on the economy and ultimately price stability – i.e. its monetary policy stance – is appropriate in order to achieve its primary objective, taking into account all the factors that affectthe medium-term inflation outlook. The stance deemed appropriate at the previous monetary policy meeting may require adjustment, with new information having become available. The Governing Council then decides on the monetary policy course that will realign its stance with the price stability objective. The severity of the financial crisis since the autumn of 2008 and its spillover to the realeconomy, together with the resulting high levels of uncertainty, have complicated both the assessment of risks to price stability and the way in which monetary policy is able to influence the euro area economy in order to ensure price stability. In such circumstances, the maintenance of price stability over the medium term has required both the rapid lowering of the key ECB interest rates and theintroduction of temporary
measures to ensure their effective transmission to the economy, with a view to tackling the financial
crisis and cushioning its impact on the real economy. As economic and financial conditions have now improved, not all exceptional measures are needed to the same extent as in the past.
2 THE MONETARY POLICY STANCE IN NORMAL TIMES
2.1 THE ECB’S MONETARY POLICY DECISIONS...