Monetary policy in Greece
Reference rate: The central bank may set the reference rate, i.e. the so-called the interest rate that determines the cost of borrowing money to other commercial banks. Changes in the reference rate can influence the level of economic activity by regulating the costs of credit for businesses and consumers. Open market operations: The central bank can conduct open market operations, which involve buying and selling bonds and other financial instruments on the secondary market. Through these actions, the central bank can modify the money supply in the economy. Reserve Requirements: The central bank may establish minimum requirements for the monetary reserves that commercial banks must keep at the central bank. Changing these requirements may affect banks’ ability to grant loans. Communication and information transfer: The central bank may use its public speeches, press conferences and reports to communicate its intentions and assessments regarding the current economic situation and future monetary policy actions. Clear and credible communication can help manage market expectations and economic stability. Currency interventions: The central bank can intervene in the market.
The central bank can use various instruments of monetary policy, including: Open market operations – buying or selling securities in the open market to increase or decrease the money supply. Interest rates – changing interest rates, e.g., the central bank’s reference rate, which affects the cost of credit and saving, in turn influencing consumption and investment. Reserve requirements – setting the percentage of deposits that commercial banks must hold in reserve, unable to use them for lending. Changing this ratio can affect the amount of money banks can lend. Refinancing operations – providing or withdrawing short-term loans to banks, affecting their liquidity and ability to finance economic activity. Monetary policy can take the form of expansionary or restrictive policy.
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Greece’s monetary policy, as in other eurozone countries, is set by the European Central Bank (ECB). Since the introduction of the euro in Greece in 2001, the country has not pursued an independent monetary policy but is part of a larger European system in which decisions on aspects such as interest rates, inflation and money supply are made centrally by the ECB.
