As of 1 January, the Latvian banking system is a part of the Eurosystem, therefore the principles of Eurosystem apply.

In order to achieve the price stability objective, the Eurosystem uses a set of monetary policy instruments and procedures. The strategy targets the level of money market interest rates required to maintain price stability in the medium term, while the operational principles outline the means of achieving the particular interest rate level by applying the available monetary policy instruments and procedures. The ECB steers the short-term money market rates by its decisions regarding the key ECB interest rates which reflect the monetary policy stance of the ECB and affect the free liquidity on the money market.

Based on the available information about the latest economic developments, the ECB has to evaluate their implications for future risks to price stability. The monetary policy strategy pursued by the ECB in analysis of the macroeconomic developments is based on two pillars.

The first pillar includes an analysis of many economic and financial variables with potential short-term or medium-term price stability implications.
The second pillar includes an analysis of monetary aggregates pointing to the leading role of money supply in maintaining price stability and focusing on a longer-term perspective.
Both Eurosystem's strategy pillars are designated to ensure a deep analysis of the monetary, economic and financial developments in the whole euro area. This detailed analysis enables the ECB to set the key ECB rates at a level best suited to promote the overall euro area price stability.