In size, composition and strategy, the ECB's Governing Council must rank as one of the most unusual monetary policymaking bodies in the world.

These same qualities may explain why the council has sometimes found it difficult to explain to financial markets and the general public how it reaches its decisions.

With 18 members, the council is considerably larger than the US Federal Reserve's 12-member federal open market committee or the Bank of England's nine-member monetary policy committee.

Moreover, the 18 members come from 12 separate countries, each with varying rates of inflation and economic growth.

The risk that council members may be perceived as representing national interests, rather than those of the euro-zone as a whole, lies behind the council's refusal to publish minutes of its meetings or individual voting records.

Yet there is a twist. As far as is known, the council has never taken a formal vote on interest rates since it assumed control of monetary policy in January 1999.

Instead, the council conducts a discussion at its fortnightly meetings which Wim Duisenberg, the 65-year-old Dutch ECB president, gradually shapes into a consensus view about whether or not to change rates.

Mr Duisenberg therefore plays a quite different role to Alan Greenspan, the Fed chairman, who dominates the Fed's decision-making process.

The council has met 57 times since the start of European monetary union and has changed rates eight times. It made a sharp cut in its main rate in April 1999 to 2.5 per cent from 3 per cent.

Its seven rate increases between November 1999 and October 2000 included two of 0.5 percentage points - in November 1999 and June 2000 - and five of 0.25 percentage points. The main rate thus stands now at 4.75 per cent.

Arguably, only two of the eight changes came as a surprise to the markets - the larger than expected cut of April 1999 and the larger than expected increase of June 2000.

However, on some occasions in recent months the ECB has disappointed markets - and some euro-zone finance ministers - by refusing to cut rates. Indeed, the ECB is the world's only major central bank not to have cut rates this year in response to the global economic slowdown.

To understand why, it is necessary to look at the council's monetary policy strategy. The ECB's primary duty, enshrined in the European Union's Maastricht Treaty, is to preserve price stability in the euro-zone.

The ECB has defined this as a medium-term annual inflation rate of between 0 and 2 per cent a year. But 2 per cent is not a target; it is the highest permissible level. Ideally, the ECB wants average inflation to be lower than 2 per cent.

Otmar Issing, the council's chief economist, acknowledged on April 27 that inflation would be higher than 2 per cent this year. Thus, for the second year running, the ECB will have overshot its target ceiling.

Since the ECB does not regard overall monetary conditions as restrictive to economic growth, and since it has a legal obligation to ensure price stability, the council sees no reason to be pushed into an early rate cut.

Ernst Welteke, the Bundesbank's representative on the council, has recently made the point that the ECB should not be compared with the Fed because the ECB is not mandated by law to promote economic growth and employment.

Some misunderstandings of the ECB's strategy have arisen from the fact that the council aims to keep M3 money supply growth at about 4.5 per cent a year over the medium term. This is sometimes wrongly seen as a target equal in importance to the goal of achieving price stability.

In fact, the council regards M3 growth as the "first pillar" of its two-pillar monetary policy strategy. The second pillar involves an assessment of other factors influencing the inflation outlook, such as wages, the exchange rate, bond prices and business and consumer surveys.

Hence if M3 growth is running above 4.5 per cent, this need not rule out an interest rate cut if the "second pillar" suggests that a rate cut is justified. Exactly these circumstances were in place when the council cut rates in April 1999.

Within the council, it would be hard to pinpoint any members as noticeably more "hawkish" or "dovish" than others. Mr Welteke, who once used to stress the seemingly benign inflation outlook in Germany, has toughened his language in the past few months.

By contrast, Jean-Claude Trichet, the Bank of France governor, has a reputation for being as firm on inflation as any Bundesbank president. But last March he was briefly in the vanguard of those apparently advocating a rate cut.

Those against seem to have included most of the central bank governors from smaller euro-zone countries, such as Ireland, Portugal and Spain, which since 1999 have tended to have higher inflation than France and Germany.

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