European Central Bank to review how it controls interest rates : simply short

Abstract

The European Central Bank (ECB) tightens or loosens financing conditions in the economy primarily through raising or cutting its key interest rates. These key ECB interest rates, or policy rates, directly affect short-term money market interest rates, as policy rates determine the interest paid by banks when borrowing from the central bank and the interest banks receive when making deposits with the central bank. In recent years, with the ECB’s asset purchase programmes and credit granted to banks, the ECB’s deposit facility rate has become the principal policy rate. The gradual reduction in the asset purchase programmes and in the volume of credit have prompted the ECB to review how it will control short-term money market interest rates in the future. It must also consider how to take climate change into account in its implementation of monetary policy.