The European Central Bank (ECB) is the central bank responsible for the euro area.
Its main task is to maintain price stability for countries that use the euro.

The ECB:

• Sets key interest rates for the eurozone

• Controls the supply of money

• Supports financial system stability

• Oversees major European banks through supervision mechanisms

The ECB does not finance governments and operates independently from political institutions.
Its decisions affect inflation, borrowing costs, and economic conditions across Europe.

Central banks influence the economy mainly through monetary policy tools.

The most important tools include:

• Interest rates

• Asset purchases (such as government bonds)

• Liquidity provided to commercial banks

By adjusting these tools, central banks can:

• Encourage spending and investment

• Slow down economic overheating

• Stabilize financial markets during crises

Central banks do not control the economy directly, but they shape financial conditions that guide economic behavior.

Monetary policy refers to the actions taken by a central bank to manage money supply and credit conditions.

Its primary objectives are:

• Price stability

• Sustainable economic growth

• Financial stability

There are two main types:

• Expansionary monetary policy, used to stimulate the economy

• Restrictive monetary policy, used to control inflation

Monetary policy decisions influence inflation, interest rates, exchange rates, and overall economic confidence.

Central banks adjust interest rates to respond to economic conditions.

They raise interest rates when:

• Inflation is too high

• The economy is overheating

• Credit growth is excessive

They cut interest rates when:

• Economic growth is weak

• Inflation is too low

• Financial conditions are tight

Interest rate changes affect borrowing, saving, investment decisions, and asset prices across the economy.

Although central banks share similar tools, their mandates differ.

• ECB (European Central Bank)
  Focuses primarily on price stability in the euro area.

• Federal Reserve (Fed) – United States
  Has a dual mandate: price stability and maximum employment.

• Bank of England (BoE) – United Kingdom
  Targets inflation while supporting economic growth and financial stability.

Each central bank operates within different legal frameworks and economic environments.

ECB decisions directly influence European banks through:

• Funding costs

• Liquidity conditions

• Regulatory requirements

Changes in interest rates affect:

• Loan pricing

• Profit margins

• Credit availability

Supervisory actions by the ECB also shape:

• Capital requirements

• Risk management standards

• Banking system resilience

As a result, ECB policy decisions play a key role in the stability and profitability of European banks.