Base rates are an important indicator of a central bank's monetary policy and have a significant influence on the financial markets and the overall economic development of a country.
By changing its base rates, a central bank can control the amount of money in circulation and thus influence inflation.
A central bank's policy rate affects the interest rates at which credit institutions lend money to each other, as well as lending to businesses and individuals. A low policy rate leads to lower lending rates, which in turn can lead to higher demand for credit and thus stimulate the economy. Conversely, a high policy rate can discourage lending and thus slow down the economy.
The European Central Bank (ECB), for example, sets the key interest rate for the euro area, which consists of the main refinancing rate, the marginal lending rate and the deposit rate. Changes in the key interest rates are closely monitored by the financial markets and can lead to price fluctuations on the stock and foreign exchange markets.
