ECB definition

What is the meaning of ECB?

ECB stands for the European Central Bank, which is the organisation responsible for the monetary policy in the eurozone. Unlike many other central banks, which only govern a single country, the ECB coordinates monetary policy for all the countries that have adopted the euro.

What does the ECB do?

The ECB works with national central banks within the eurozone to manage inflation levels and ensure the overall stability of the euro.

The decision-making body of the ECB is the governing council, which is made up of the governors of the central banks of the eurozone countries, alongside an executive board of six ECB personnel – including the president and vice-president of the ECB – and economists.

The governing council has overall responsibility for the formulation of monetary policy within the eurozone, including any decisions relating to interest rates, central bank currency reserves and the establishment of guidelines to allow these decisions to be implemented.

Three of the most important interest rate decisions taken by the governing council are:

• The main refinancing operations – the rate banks pay when they borrow money from the ECB for one week. The bank will need to provide collateral to guarantee repayment of the loan
• The marginal lending facility – the interest rate banks pay when they borrow from the ECB overnight. The bank will need to provide collateral to guarantee repayment of the loan
• The deposit facility – the interest that banks receive for depositing money with the ECB overnight. The ECB currently has a negative deposit facility rate, meaning that banks will have to pay the ECB to deposit money with it

Why are ECB decisions important for traders?

ECB decisions are important to traders because any announcements that might change monetary policy could have either a beneficial or adverse effect on the value of the euro and euro-denominated assets in the financial markets.