Central bank
The institution that sets monetary policy and is usually charged with price stability.
2 min read · Reviewed September 2026
In plain words
A central bank controls the money supply and short-term interest rates. Most have a mandate to keep inflation near a target (typically 2%) while supporting employment. They use the policy rate as their main lever.
Frequently asked questions
What do central banks do about inflation?
They raise or lower their policy interest rate. Higher rates make borrowing more expensive, cooling demand and reducing price pressure. Lower rates stimulate spending and investment.
Which central bank sets rates in Europe?
The European Central Bank (ECB) sets monetary policy for all 20 euro-area countries. Non-euro EU members like Poland or Sweden have their own national central banks.
Further reading