European Central Bank

European Central Bank

The European Central Bank (ECB) is the central bank of the 19 countries of the European Union, which in 2002 adopted the common currency – the euro.

The ECB is responsible for the safeguarding of the euro’s value and for maintaining price stability in the euro region (in other words, keeping inflation rate at 2% or close to this level). Its main tasks are to define and implement monetary policy for the euro area, take charge of the national banks of the euro zone members, conduct foreign exchange operations, promote smooth operating of payments systems and take care of the euro area’s foreign currency reserves.

The ECB’s makes Governing monetary policy decisions every 6 weeks. These decisions are followed by the press conferences and have a big impact on the dynamics of the euro. The minutes of the ECB meetings don’t usually affect the markets much.  

Recent undertakings and future challenges

After the global financial crisis, the ECB went for multiple rate hikes in order to stem inflation. However, other central banks were at that time lowering rates in order to help their national economies by weakening national currency and encouraging exports. The euro area’s economy got hit hard, and the ECB had to follow the example of other regulators and lower its rate to make European export sectors more competitive. The following euro area’s debt crisis of 2010-2012 made the regulator ease monetary policy further and even opt for QE. Persistently low inflation in the recent years as well and political risks for the currency union have been preventing the ECB from tightening policy in the recent years. As it is still unclear whether the euro zone has managed to survive a series of unprecedented political and economic crises, the ECB policy will likely remain loose for a long time. 

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