As a member of the Eurosystem, the Bank of Finland participates in preparation of the single

monetary policy, related decision-making and implementation in the euro area. The main
objective of Eurosystem monetary policy is to maintain price stability in the euro area and
thereby safeguard the purchasing power of the euro. Price stability is defined as an annual rate
of increase in consumer prices below, but close to 2% over the medium term.
In the euro area, monetary policy decisions are taken by the Governing Council of the European
Central Bank. This comprises all the members of the Executive Board of the ECB and governors
of the euro area national central banks. The Governor of the Bank of Finland thus has an
important role in setting financing conditions for the whole of Europe.
The Eurosystem’s monetary policy strategy has two key functions:
It provides a framework for the policy decision process. The strategy must ensure that the
Governing Council of the ECB has access to all the information and analyses required for the
making of efficient monetary policy decisions that maintain price stability.
The strategy is a tool for communication with the public. Monetary policy is most efficient when
it is credible, ie when the public is fully convinced that monetary policy is entirely committed to
the price stability objective and implemented so that the goal is efficiently achieved.
To perform these two tasks, complementing each other, it is essential to know how the
economy works. It is especially important to be able to assess, on the basis of available
information, any future threats to price stability by studying current economic developments.
The monetary policy strategy for assessing macroeconomic developments is based on two
pillars: a broad economic analysis and a monetary analysis.
The broad economic analysis uses a large number of macroeconomic indicators of
macroeconomic developments that serve as a basis for the assessment of the potential risks to
price stability. Such indicators are, for example, salaries and wages, foreign exchange rates,
long-term rates, different indicators of economic activity and fiscal policies, price and cost
indices, and business and consumer barometers.
The monetary analysis uses monetary indicators to assess potential risks to price stability.
Monetary indicators are, for example, the amount of notes and coins held by the public and the
stock of lending of monetary financial institutions (MFIs). Attention is paid to expansion of
monetary aggregate M3, increase in private sector lending and liquidity surplus indicators.
The two strategy pillars of the Eurosystem are designed to ensure that monetary, economic and
financial developments across the euro are monitored and analysed carefully. This in-depth
analysis enables the ECB to set its key interests at a level that is best suited to promote price
stability. In this way, the Eurosystem safeguards the purchasing power of the euro while
supporting the external value of the currency, as measured by the exchange rate against other
currencies. However, the exchange rate in itself is not part of monetary policy strategy.