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Policy rate

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 28 Apr 2023

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Policy Rate

A policy rate is a rate set by a central bank or other regulatory body to influence the cost and availability of credit in an economy. It is the rate at which the central bank lends money to commercial banks and other financial institutions. The policy rate is also known as the benchmark rate, the base rate, or the target rate. It is the rate that the central bank uses to influence the money supply and the cost of borrowing in the economy.

The policy rate is an important tool for central banks to control inflation and manage economic growth. By setting the policy rate, the central bank can influence the cost of borrowing and the availability of credit in the economy. When the policy rate is low, it encourages borrowing and spending, which can stimulate economic growth. When the policy rate is high, it discourages borrowing and spending, which can help to control inflation.

The policy rate is set by the central bank’s monetary policy committee. The committee meets regularly to review economic data and make decisions about the policy rate. The policy rate is usually announced after the committee’s meeting. The policy rate is usually expressed as a percentage, and it is usually expressed in terms of the central bank’s base rate.

History of the Term

The concept of a policy rate has been around since the early 20th century. The first central bank to set a policy rate was the Bank of England in 1925. Since then, many other central banks have adopted the practice of setting a policy rate. In the United States, the Federal Reserve began setting a policy rate in 1979.

The policy rate is an important tool for central banks to manage the money supply and the cost of borrowing in the economy. Central banks use the policy rate to influence the cost of borrowing and the availability of credit in the economy. By setting the policy rate, the central bank can influence the money supply and the cost of borrowing in the economy.

Comparison Table

Country Policy Rate
United States 0.25%
United Kingdom 0.10%
Japan -0.10%
Germany -0.50%
France -0.40%

Summary

A policy rate is a rate set by a central bank or other regulatory body to influence the cost and availability of credit in an economy. It is the rate at which the central bank lends money to commercial banks and other financial institutions. The policy rate is an important tool for central banks to control inflation and manage economic growth. For more information about policy rates, you can visit the websites of the Federal Reserve, the Bank of England, and other central banks.

See Also

  • Interest Rate
  • Monetary Policy
  • Inflation
  • Money Supply
  • Credit
  • Central Bank
  • Base Rate
  • Target Rate
  • Benchmark Rate
  • Monetary Policy Committee

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