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Bank rate

The Bank Rate is the interest rate paid by the Bank of England on overnight deposits from eligible commercial banks and other financial institutions, functioning as the primary instrument of UK monetary policy to influence short-term market rates and broader economic conditions.^[1]^[2] Set by the Bank's Monetary Policy Committee (MPC) eight times annually, it targets a 2% inflation rate over the medium term by adjusting the cost of borrowing and incentives for saving, thereby affecting consumer spending, business investment, and overall price stability.^[2]^[1] Adjustments to the Bank Rate transmit through the financial system by anchoring expectations for other interest rates, such as those on loans, mortgages, and savings accounts offered by commercial banks, which typically align closely with it to maintain profitability and liquidity.^[1] Higher rates discourage excessive borrowing and spending to curb inflation, while lower rates stimulate economic activity during downturns, though prolonged low rates can risk asset bubbles or financial imbalances if not calibrated to empirical indicators like wage growth and productivity trends.^[1]^[3] The mechanism relies on banks' reserve management, where the Rate sets the floor for unsecured overnight lending markets, ensuring policy signals propagate efficiently without relying on discretionary interventions.^[3] Historical records of the Bank Rate date back to 1694, reflecting its evolution from a rudimentary discount mechanism to a sophisticated policy lever amid events like the Napoleonic Wars, post-war inflation spikes, and the 2008 financial crisis, during which it reached a record low of 0.1% before gradual normalization.^[4] Notable peaks, such as 17% in 1979 amid stagflation, underscore its role in combating persistent price pressures through contractionary policy, though effectiveness depends on fiscal restraint and supply-side factors rather than rate changes alone.^[4]^[5] As of August 2025, the Rate stands at 4.00%, following MPC decisions responsive to post-pandemic inflation dynamics and global uncertainties.^[4]

Definition and Terminology

Core Concept and Function

The bank rate, also referred to as the discount rate in certain jurisdictions, is the interest rate charged by a central bank to commercial banks for short-term loans or advances, typically secured against collateral such as government securities or eligible bills.^[6]^[7] This rate establishes the baseline cost of liquidity provision from the central bank to the banking system, directly influencing the interbank lending market and broader credit conditions.^[1] In operational terms, commercial banks borrow at the bank rate when facing temporary reserve shortfalls, with the rate acting as a penalty or incentive aligned with the central bank's macroeconomic targets.^[8] The primary function of the bank rate lies in its role as a transmission mechanism for monetary policy, modulating the money supply and aggregate demand within the economy. By elevating the bank rate, the central bank increases borrowing costs for commercial banks, which in turn raise lending rates to businesses and households, thereby dampening credit expansion, investment, and consumption to curb inflationary pressures.^[9] Conversely, lowering the bank rate reduces these costs, stimulating borrowing and economic activity during periods of sluggish growth or recession.^[10] This adjustment process operates through the banking sector's balance sheets, where higher reserve costs constrain banks' profitability on loans, prompting tighter credit standards and reduced money multiplier effects.^[11] Empirically, changes in the bank rate ripple through to key economic indicators; for instance, a 1% hike typically correlates with subdued GDP growth and moderated consumer price inflation over 12-18 months, as evidenced in policy episodes by major central banks.^[12] While the bank rate's efficacy depends on banking system health and public expectations, it remains a foundational tool for achieving price stability and output stabilization, distinct from open market operations that target shorter-term rates.^[13] The bank rate, as the interest rate charged by a central bank for loans to commercial banks, differs from the federal funds rate, which is the market-determined interest rate at which depository institutions lend reserve balances to each other overnight.^[14]^[15] While the bank rate is directly set by the central bank as a policy tool to influence broader lending conditions, the federal funds rate emerges from interbank transactions and is targeted indirectly through open market operations, serving as a benchmark for short-term market rates but not as a standing lending facility rate.^[16]^[17] In contrast to the discount rate—often used interchangeably with bank rate in some contexts, such as the Bank of England's framework—the U.S. Federal Reserve's discount rate specifically applies to primary credit extended through the discount window, typically set above the federal funds target to discourage non-emergency borrowing and act as a ceiling for market rates.^[16]^[17] This distinction ensures the discount rate functions more as a safety valve for liquidity shortages rather than the primary policy signal, whereas the bank rate in jurisdictions like the UK directly anchors the monetary policy corridor by influencing both lending and deposit rates for reserves.^[1] The bank rate also contrasts with the repo rate, prevalent in systems like the European Central Bank's main refinancing operations, where funds are provided against collateral via repurchase agreements for fixed terms, emphasizing secured short-term liquidity provision over the unsecured or standing facilities implied by a traditional bank rate.^[18] Similarly, the interest rate on reserves—paid by central banks on excess balances held by commercial banks—sets a floor for money market rates in ample reserves regimes, complementing but operating inversely to the bank rate's role as an upper bound in corridor-based frameworks.^[19]^[17] Lombard rates, by extension, represent penalty-level lending against collateral for marginal borrowing needs, exceeding standard bank rates to penalize over-reliance.^[18]

Rate Type	Key Feature	Role in Monetary Policy	Example Jurisdiction
Bank Rate	Central bank lending rate to commercial banks	Policy anchor influencing lending costs	Bank of England (set at 5% as of September 2025)^[1]
Federal Funds Rate	Interbank overnight lending market rate	Targeted benchmark for short-term rates	U.S. Federal Reserve (4.00%-4.25% range as of September 2025)^[20]
Discount Rate	Rate for discount window borrowing, often collateralized	Ceiling and emergency facility	U.S. Federal Reserve primary credit rate^[16]
Repo Rate	Rate for collateralized repurchase operations	Liquidity injection tool	European Central Bank main refinancing rate^[18]
Interest on Reserves	Rate paid on bank reserves at central bank	Floor for market rates in ample reserves systems	U.S. Federal Reserve IORB^[19]

Historical Origins and Evolution

Early Development in Central Banking

The concept of the bank rate emerged alongside the formation of the first modern central banks in Europe during the late 17th century, primarily as a mechanism for discounting eligible securities and providing short-term liquidity to support government finance and commercial activity. The Bank of England, established on July 27, 1694, under a royal charter to raise £1.2 million for war funding against France, initially lent to the government at an 8% rate and extended discounting operations to exchequer bills and tallies, setting the precedent for a formalized lending rate that influenced broader credit conditions.^[21] This rate, retrospectively termed the Bank Rate, allowed the institution to manage its own reserves while indirectly affecting market interest rates through the cost of rediscounting commercial paper, though early adjustments were driven more by profitability and liquidity needs than systematic monetary control.^[1] Sveriges Riksbank, founded in 1668 as the world's oldest central bank, initially focused on note issuance and deposit banking but did not employ the discount rate as a distinct policy instrument until the 19th century, with records indicating its first explicit use in 1890 to counter foreign currency demand pressures amid the Barings crisis spillover.^[22] In contrast, the Bank of England's operations evolved more rapidly; by the early 18th century, it discounted private bills of exchange at rates typically aligned with or above market levels, ranging from 3% to 8% in stable periods, serving to ration credit and stabilize note circulation tied to specie reserves.^[23] Historical series confirm Bank Rate data extending continuously from 1694, with spikes to 10% or higher during liquidity strains, such as in 1696, underscoring its role in crisis response rather than proactive economic steering.^[24] By the late 18th century, the bank rate's utility expanded toward influencing domestic credit and external drains, as articulated by economist Henry Thornton in his 1802 work An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, where he argued for raising discount rates during reserve outflows to curb speculative lending and restore equilibrium without suspending specie payments.^[25] This laid groundwork for viewing the rate as a lender-of-last-resort tool, though practical application remained ad hoc until the 19th century; for instance, the Bank of England did not systematically deploy rate changes for monetary policy until around 1864, when it began aligning them with open market conditions to defend the gold standard.^[26] Early limitations included legal restrictions on note issuance and reliance on usury caps, which constrained rate flexibility and often led to reliance on alternative tools like bill purchases for liquidity management.^[27]

20th Century Standardization and Key Reforms

The establishment of the Federal Reserve System via the Federal Reserve Act of December 23, 1913, represented a pivotal standardization of the bank rate mechanism in the United States, creating a decentralized network of 12 regional banks empowered to set discount rates for lending to member institutions, thereby providing a uniform framework for monetary accommodation across the nation.^[28] This reform addressed prior banking instability by introducing elastic currency and coordinated rate adjustments, influencing global central banking practices as other nations modeled their institutions accordingly.^[27] In the 1920s, the Federal Reserve refined its use of the discount rate as a macroeconomic tool, raising it sharply from 4% to 7% in 1920 to curb postwar inflation and gold outflows, demonstrating the rate's role in stabilizing prices and reserves.^[29] The Banking Act of 1935 further reformed the structure by transferring primary authority over discount rate decisions from regional banks to the centralized Federal Reserve Board, enhancing policy consistency and reducing fragmentation during the Great Depression era.^[30] The Treasury-Federal Reserve Accord of March 1951 marked a critical reform, ending the World War II-era obligation to peg government bond yields and restoring the Fed's autonomy to adjust discount rates independently for economic stabilization rather than fiscal support.^[31] This shift enabled more flexible monetary policy, with the discount rate complementing open market operations to target inflation and growth.^[32] In the United Kingdom, the Bank of England's bank rate, historically the minimum rate for discounting bills, saw procedural standardization through committee-based decisions, with a notable policy pivot in September 1931 when suspension of the gold standard permitted a reduction from 6% to 2%, facilitating recovery amid the Depression.^[33] The Bank's nationalization under the Bank of England Act 1946 integrated it more fully into public policy but maintained the bank rate as the core lending benchmark, aligning with postwar efforts to manage fixed exchange rates under Bretton Woods.^[27] Globally, the 20th century witnessed widespread adoption of similar bank rate frameworks as newly independent central banks in Latin America, Europe, and Commonwealth nations emulated U.S. and U.K. models, standardizing discount lending as a stabilizer against liquidity shocks by the mid-century.^[34] These reforms collectively transitioned bank rates from ad hoc crisis tools to systematic instruments of demand management, though constrained by gold and exchange rate commitments until later decades.^[35]

Post-1971 Shifts and Modern Usage

The suspension of U.S. dollar convertibility to gold by President Richard Nixon on August 15, 1971—known as the Nixon Shock—marked the effective end of the Bretton Woods system of fixed exchange rates, transitioning major currencies to floating rates by 1973. This shift decoupled central bank policies from gold reserves and exchange rate pegs, allowing greater focus on domestic objectives such as price stability, though it initially exacerbated inflationary pressures amid oil shocks and expansionary fiscal policies.^[36]^[37] Central banks, including the Federal Reserve and Bank of England, responded by elevating bank rates (the discount or lending rate to commercial banks) to combat the Great Inflation of the 1970s, with the U.S. federal funds rate peaking at 20% in March 1980 under Federal Reserve Chair Paul Volcker and the Bank of England rate reaching 17% in November 1979.^[38]^[20]^[5] In the 1980s and 1990s, central banks refined bank rate mechanisms as part of broader monetary reforms emphasizing inflation control over output stabilization. Volcker's aggressive rate hikes from 1979 reduced U.S. inflation from over 13% in 1980 to around 3% by 1983, demonstrating the potency of tight policy despite inducing recessions, while similar hikes by the Bank of England stabilized the pound post-ERM exit in 1992.^[38] The adoption of explicit inflation targeting frameworks accelerated this evolution, beginning with New Zealand in 1990 (formalized under the Reserve Bank of New Zealand Act 1989), followed by Canada in 1991 and the United Kingdom in 1992 after its Black Wednesday crisis.^[39] By granting operational independence to bodies like the Bank of England's Monetary Policy Committee in 1997, these regimes positioned bank rates as the primary lever for achieving targets, typically 2% consumer price inflation, through forward guidance and data-dependent adjustments.^[40] In contemporary usage, the bank rate functions less as a direct lending penalty and more as an anchor for short-term market rates, influencing interbank lending, reserve remuneration, and broader credit conditions via open market operations. For instance, the Federal Reserve's discount rate—historically adjusted post-1971 in tandem with federal funds targeting—serves mainly as a ceiling, with primary adjustments occurring through the federal funds rate corridor, as seen in multiple hikes from 0% to 5.25-5.50% between 2022 and 2023 to counter post-pandemic inflation exceeding 9%.^[41] Similarly, the Bank of England's Bank Rate, set monthly by its MPC, targets overnight rates and has been lowered to historic lows like 0.1% in March 2020 during COVID-19 before rising to 5.25% by August 2023 amid renewed inflationary pressures.^[4] Empirical evidence from these regimes indicates sustained low inflation variance, though critics note potential trade-offs in financial stability and growth, as prolonged low rates post-2008 contributed to asset bubbles without fully addressing structural productivity declines.^[42]

Theoretical Foundations and Policy Objectives

First-Principles Mechanism

The bank rate constitutes the interest rate charged by a central bank to commercial banks for short-term loans, typically to address reserve deficiencies or liquidity shortfalls. This rate establishes a benchmark cost for banks' access to central bank funds, influencing their overall funding expenses relative to market alternatives like interbank lending. When commercial banks borrow at the bank rate, they acquire reserves that enable further lending to households and firms, but the rate's level modulates the incentive and feasibility of such borrowing.^[1]^[43] From causal fundamentals, an increase in the bank rate raises the marginal cost of central bank liquidity, deterring banks from frequent or large-scale borrowing and compelling them to either attract higher-cost deposits from the public or restrict credit origination to minimize reserve drains. This elevates banks' lending rates to end-users, as they pass through elevated funding costs to maintain margins, thereby dampening loan demand and supply; empirical pass-through studies confirm that policy rate hikes typically raise bank lending rates by 50-100% of the change, depending on market conditions and bank balance sheets. Reduced lending curtails deposit creation via the fractional reserve multiplier—where each loan generates new deposits supporting additional loans—leading to a contraction in the money supply aggregate M2, as banks hold excess reserves rather than extend credit. Conversely, a lower bank rate cheapens reserve acquisition, encouraging banks to expand loans and deposits, amplifying money supply growth through iterative credit cycles.^[44]^[45] This mechanism hinges on banks' profit maximization under reserve constraints: higher bank rates increase the opportunity cost of lending (by making reserve shortfalls costlier), shifting bank portfolios toward safer assets and reducing risk-taking in credit allocation, which empirically correlates with slower broad money expansion during tightening episodes, as observed in post-2008 data where discount rate adjustments reinforced policy signals amid ample reserves. In regimes with interest paid on reserves—now standard in many systems—the bank rate also sets a floor for short-term market rates by remunerating excess holdings, preventing arbitrage-driven deviations and ensuring transmission to deposit and lending markets without direct reserve quantity manipulation.^[3]^[46]

Primary Goals: Inflation Targeting and Economic Stabilization

The primary mechanism through which central banks employ the bank rate involves adjusting short-term interest rates to influence aggregate demand and thereby control inflation, with most advanced economies targeting an annual rate of approximately 2% as measured by consumer price indices.^[47]^[48] This target emerged as a consensus in the 1990s following empirical observations that low, stable inflation fosters predictable economic planning and avoids the distortions of high inflation, such as menu costs and shoe-leather costs, while excessive deflation risks debt burdens and delayed spending.^[49] By raising the bank rate, central banks increase the cost of reserves for commercial banks, which transmits to higher lending rates for households and firms, curbing borrowing, consumption, and investment to dampen inflationary pressures from excess demand.^[1] Conversely, lowering the rate stimulates credit expansion and economic activity when inflation undershoots the target.^[50] Economic stabilization constitutes a complementary objective, where the bank rate serves as a counter-cyclical tool to mitigate output volatility and support employment without compromising price stability.^[51] For instance, the Bank of England adjusts its Bank Rate—set at 5% as of September 2025—to align inflation with the government's 2% target while smoothing business cycle fluctuations, as evidenced by rate cuts during the 2008 financial crisis and hikes amid post-pandemic supply shocks.^[48]^[1] In the United States, while the discount rate functions more as a ceiling on interbank lending, the Federal Reserve's analogous federal funds rate targets—maintained at 4.25-4.50% in late 2025—pursue a dual mandate of maximum sustainable employment and 2% inflation, reflecting congressional intent to balance growth stabilization with price control.^[52]^[53] Empirical data from inflation-targeting regimes show reduced inflation variance since adoption, though stabilization benefits depend on timely transmission through banking channels and avoidance of zero lower bounds.^[54] Central banks integrate forward-looking assessments into rate decisions, forecasting inflation paths based on models incorporating wage growth, commodity prices, and fiscal policy to preempt deviations, as deviations from the target trigger accountability mechanisms like public reports.^[49] This approach prioritizes long-run price stability over short-term output boosts, grounded in evidence that unchecked inflation erodes purchasing power and distorts resource allocation more severely than moderate recessions.^[55] For example, the European Central Bank's harmonized 2% target similarly uses policy rates to stabilize the eurozone economy, adjusting for heterogeneous member states' conditions to prevent asymmetric shocks.^[47] Overall, these goals reflect a causal chain where rate adjustments modulate money supply velocity, ensuring neither hyperinflation nor stagnation undermines real economic output.^[12]

Determination and Adjustment Processes

Factors Influencing Rate Decisions

Central banks adjust the bank rate, their primary policy interest rate, based on assessments of current and projected economic conditions to fulfill mandates such as price stability and sustainable employment. For the U.S. Federal Reserve, decisions hinge on its dual mandate under the Federal Reserve Act of 1913 (amended), targeting maximum employment and a 2% inflation rate measured by the Personal Consumption Expenditures (PCE) price index. ^[13] ^[56] Key data inputs include consumer price index (CPI) readings, wage growth via metrics like the Employment Cost Index, and labor market slack indicated by unemployment rates below or above the non-accelerating inflation rate of unemployment (NAIRU), estimated around 4-5% in recent analyses. ^[57] Economic output gaps, derived from real GDP relative to potential GDP, also drive adjustments; positive gaps (overheating) prompt rate hikes to curb demand-pull inflation, while negative gaps (recessions) warrant cuts to stimulate borrowing and investment. ^[58] The Taylor rule, a benchmark formula proposed by economist John Taylor in 1993, formalizes this by prescribing the rate as the neutral rate plus deviations in inflation from target and output from potential, though central banks apply it discretionally rather than mechanically. ^[59] For the European Central Bank (ECB), symmetric 2% medium-term inflation targeting dominates, with decisions informed by harmonized index of consumer prices (HICP) forecasts, incorporating risks from energy prices and supply shocks, as evidenced in Governing Council statements assessing euro area growth at 0.8% for 2025 amid subdued demand. ^[60] ^[61] Financial stability considerations, including credit spreads, asset valuations, and banking sector liquidity, influence rates indirectly; elevated risks, such as those during the 2023 regional bank stresses, can delay hikes or accelerate easing to prevent systemic spillovers. ^[62] External factors like exchange rate volatility—e.g., dollar appreciation curbing imported inflation—and global commodity trends, particularly oil at $70-80 per barrel in late 2025, are weighed for their pass-through effects. ^[12] Fiscal policy interactions, such as U.S. deficits exceeding 6% of GDP in 2024, may constrain easing by amplifying inflationary pressures, prompting central banks to prioritize independence in rate paths. ^[63] Forward guidance incorporates probabilistic scenarios from staff models, ensuring decisions reflect data-dependent paths rather than fixed rules.

Tools and Procedures in Practice

Central banks operationalize the bank rate, their primary policy rate for influencing short-term interest rates, through structured frameworks that combine administered rates, market operations, and standing facilities to align market rates with the target.^[64] These frameworks generally adopt either a corridor or floor system, each dictating distinct procedures for reserve management and rate control.^[64] In a corridor system, reserves are supplied in limited quantities to intersect a downward-sloping bank demand curve, allowing the overnight rate to vary within bounds set by the central bank's deposit facility rate (floor) and lending or bank rate (ceiling).^[64] The central bank conducts frequent open market operations—typically daily or as needed—buying or selling securities to fine-tune reserve levels and steer the rate toward the midpoint or target within the corridor.^[65] This setup incentivizes interbank trading due to the positive spread between corridor edges, with banks borrowing from the central bank at the penalty ceiling rate only in shortages and depositing excess at the floor to avoid opportunity costs.^[64] Examples include the Bank of Korea, where high marginal costs and near-zero reserves promote active liquidity management.^[64] By contrast, a floor system, adopted by many advanced economies since the 2008 financial crisis, floods the system with ample reserves to flatten the demand curve at or near the interest rate on excess reserves (e.g., IORB in the U.S.), minimizing trading incentives and volatility.^[11]^[64] Here, the bank rate functions more as a backstop ceiling via lending facilities, while tools like overnight reverse repurchase agreements (ON RRP) reinforce the floor for non-bank participants.^[11] Implementation emphasizes administered rate adjustments over quantity targeting; for instance, the Federal Reserve's New York Desk maintains the federal funds rate target range—set by the FOMC at eight meetings annually—primarily through IORB and ON RRP settings, with open market operations used sparingly for balance sheet normalization rather than daily steering.^[11] Rate adjustments follow procedural announcements by the policy committee, leveraging credible signals to shift reserve demand vertically via expectation effects, often without substantial reserve supply changes.^[59] Reserve averaging over multi-day maintenance periods (e.g., two weeks in the U.S.) renders daily demand inelastic, enabling effective targeting with minimal interventions—empirical data show U.S. reserve changes of less than $100 million per 1% rate hike.^[59] Standing facilities commit unlimited liquidity absorption or provision at corridor edges, bounding deviations, while backstops like discount windows or standing repo facilities (SRF) activate in stress to prevent spikes, as seen in the Fed's use during 2019-2020 repo market turbulence.^[11]^[59] Across frameworks, market rates track targets closely post-announcement, with floor systems offering tighter control in normal times but both converting to floor-like behavior under liquidity abundance.^[64]^[66]

Economic Impacts and Empirical Evidence

Effects on Money Supply and Lending

Lowering the bank rate reduces the cost for commercial banks to borrow reserves from the central bank, incentivizing them to access more funds and expand lending to the private sector, which amplifies the money supply through the deposit-creation process where loans generate new deposits that can be lent out again.^[45]^[67] This mechanism operates via the bank lending channel: cheaper wholesale funding lowers banks' marginal cost of capital, enabling them to offer lower loan rates to borrowers and increase credit extension, particularly to interest-sensitive sectors like real estate and business investment.^[51] Empirical studies confirm this transmission; for example, a 1% tightening in monetary policy stance leads to approximately a 0.29% rise in bank lending rates, reducing loan volumes as borrowing becomes costlier.^[68] Raising the bank rate, by contrast, elevates the penalty rate for reserve shortfalls, discouraging reliance on central bank liquidity and prompting banks to ration credit, hoard reserves, or seek pricier market funding, which contracts the broader money supply (e.g., M2) by limiting deposit expansion.^[45]^[67] In practice, this effect is evident in historical rate hikes; during the U.S. Federal Reserve's 2015–2019 normalization cycle, where the federal funds rate rose from near-zero to 2.25–2.50%, aggregate bank lending growth decelerated from over 7% annually in 2014 to around 5% by 2019, reflecting tighter credit conditions amid higher funding costs.^[52] However, the responsiveness varies with banks' balance sheet health—less capitalized institutions curtail lending more sharply, amplifying contractionary effects during tightenings.^[69] In modern ample-reserves regimes, post-2008 financial crisis, the traditional reserves-to-lending linkage has weakened, as central banks maintain large balance sheets and remunerate excess reserves, shifting emphasis to portfolio rebalancing and demand-side responses rather than reserve scarcity.^[70] Nonetheless, policy rate adjustments still influence money supply indirectly: lower rates boost loan demand and asset purchases, fostering monetary expansion, while hikes suppress it by raising debt-servicing burdens and curbing velocity.^[71] Cross-country evidence supports this; in Ghana from 2006–2020, monetary policy rate hikes correlated with lagged contractions in commercial lending rates and credit growth, though pass-through was incomplete due to structural frictions like high non-performing loans.^[72] Overall, while the bank rate's leverage on money supply has evolved with unconventional tools like quantitative easing, its core role in modulating lending remains a primary transmission vector for stabilization policy.^[12]

Influence on Inflation, Growth, and Employment

Increases in the bank rate, by elevating the cost of reserves for commercial banks, transmit higher interest rates throughout the economy, discouraging borrowing for consumption and investment, thereby contracting aggregate demand and exerting downward pressure on price levels. This mechanism has been empirically validated in multiple episodes; for instance, during Paul Volcker's tenure as Federal Reserve Chair, the effective federal funds rate rose to approximately 20% by mid-1981, contributing to a decline in U.S. consumer price inflation from 13.5% in 1980 to 3.2% by 1983, as reduced money supply growth curbed demand-pull pressures.^[73]^[74] Similarly, the Federal Reserve's aggressive rate hikes from near-zero levels to 5.25%-5.50% between March 2022 and July 2023 helped lower core PCE inflation from a peak of 5.6% in June 2022 to around 2.6% by late 2024, demonstrating the policy's efficacy in anchoring inflation expectations amid supply disruptions and fiscal stimulus.^[75]^[76] However, transmission lags typically span 12-18 months for inflation, as initial rate changes affect asset prices and credit conditions before fully impacting wage and price dynamics.^[77] While effective against inflation, bank rate hikes often impede economic growth by raising financing costs for capital-intensive projects and household expenditures, leading to reduced business investment and durable goods purchases. Empirical studies indicate that a 1 percentage point tightening in policy rates correlates with a 0.5-1% contraction in GDP over 1-2 years, as seen in the 1981-1982 U.S. recession where real GDP fell 2.7% amid Volcker's disinflationary push.^[78] In the 2022-2023 cycle, U.S. GDP growth moderated from 5.9% in 2021 to 2.5% in 2022 and 2.1% in 2023, reflecting slowed residential investment and manufacturing activity without tipping into outright contraction, partly due to resilient consumer balance sheets.^[75] Growth effects exhibit asymmetry, with contractionary policy more reliably dampening booms than expansionary easing accelerating recoveries, per vector autoregression analyses of historical data.^[78] Employment responds to bank rate adjustments via the labor demand channel, where higher rates elevate firm borrowing costs, prompting hiring restraint and potential layoffs to preserve margins. Contractionary policy has historically elevated unemployment; Volcker's hikes pushed the U.S. rate from 7.1% in 1980 to a peak of 10.8% in late 1982, as cyclical downturns amplified structural frictions in labor markets.^[73] More recently, the 2022-2023 tightenings raised unemployment from 3.5% in early 2023 to 4.1% by mid-2024, though below historical recessionary peaks, underscoring policy's role in cooling overheated labor markets while avoiding severe dislocations.^[75]^[79] Effects on job destruction outpace stimulation of job creation, with empirical estimates showing a 1 percentage point rate increase associating with 0.2-0.4 percentage point rises in unemployment after 6-12 months, reflecting Phillips curve dynamics in the short run despite long-run neutrality.^[78]^[80]

Consequences for Asset Prices and Inequality

Lowering the bank rate reduces short-term interest rates economy-wide, lowering the discount rate applied to future cash flows and thereby elevating valuations of income-generating assets such as equities and real estate.^[81] Vector autoregression models applied to U.S. data indicate that a 1 percentage point cut in the federal funds rate correlates with a 5-10% rise in stock prices over the following quarters, driven by increased borrowing for investment and portfolio shifts toward riskier assets.^[81] Similarly, empirical evidence from Bank of England asset purchase programs shows that unconventional easing post-2008 boosted UK equity indices by 20-30% beyond baseline forecasts, with effects persisting through lower long-term yields.^[82] In housing markets, sustained low bank rates amplify demand via cheaper mortgages, pushing up property prices; Federal Reserve quantitative easing from 2020-2022, which included mortgage-backed securities purchases, contributed to U.S. home price appreciation of over 40% in many regions, exacerbating affordability constraints amid tight supply.^[83] This dynamic has fueled concerns over asset bubbles, as loose policy correlates with deviations from fundamentals: BIS analyses link prolonged low real rates to housing booms preceding the 2007-2008 crisis, where U.S. home prices rose 80% from 2000-2006 before a 30% correction.^[84] Rate hikes reverse these effects, compressing asset multiples; for instance, the Fed's 2022-2023 tightening cycle saw S&P 500 declines of up to 25% and moderated housing price growth to under 5% annually.^[85] These asset price dynamics exacerbate wealth inequality, as the top wealth deciles hold 80-90% of equities and non-primary residence real estate in advanced economies, capturing most gains from monetary easing.^[86] ECB panel data from 2000-2017 reveal that a 1 percentage point policy rate cut widens the euro area wealth Gini coefficient by 0.5-1 point through asset channel dominance, with lower-income households deriving less benefit from wage or credit transmission.^[86] Cross-country studies confirm this pattern: IMF research attributes 10-20% of post-GFC U.S. wealth inequality rises to equity and housing rallies under zero lower bound policies, as savers in cash or bonds face eroded real returns while debtors refinance at lower costs.^[87]^[88] Conversely, savers—often middle-income retirees—bear the brunt of low rates, with Dutch National Bank surveys estimating that euro area households in the bottom 50% wealth bracket lost 5-10% of disposable income equivalents from yield compression between 2010-2020.^[89] While expansionary policy supports employment for lower earners via growth spillovers, net distributional effects favor asset owners, prompting debates over central banks' unintended role in entrenching capital over labor returns.^[90]

Criticisms and Debates

Market Distortions and Boom-Bust Cycles

Central banks' manipulation of the bank rate below the natural rate of interest—determined by voluntary savings and investment preferences—distorts intertemporal price signals, encouraging excessive credit expansion and malinvestment in capital-intensive projects that exceed available real savings.^[91] This artificial suppression of borrowing costs signals false abundance of savings, prompting businesses to initiate long-term investments unsustainable without ongoing monetary accommodation, as outlined in Austrian business cycle theory.^[92] Empirical models demonstrate that such policy-induced credit booms amplify financial cycles, with credit growth and asset price surges preceding downturns of longer duration and amplitude than traditional business cycles.^[93] During the expansion phase, low bank rates fuel asset price inflation, particularly in equities and real estate, by lowering discount rates and boosting leverage; for instance, European Central Bank analysis links interest rate cuts to stock market booms that turn welfare-reducing upon reversal.^[94] In the U.S., Federal Reserve rates held at 1% from June 2003 to June 2004 contributed to a housing price surge, with vector autoregression studies estimating that this loose policy explained up to 50% of the subsequent bubble's growth by spurring mortgage lending and speculation.^[95] ^[96] However, counteranalyses argue that while correlations exist, low rates alone do not prove causation, as house price rises may reflect demand factors independent of policy, such as investor optimism.^[97] The inevitable bust follows when central banks normalize rates or credit contracts, revealing overinvestment and triggering deleveraging; this maladjustment process, rather than exogenous shocks, underlies recurrent cycles, with post-2008 data showing prolonged low-rate environments correlating with repeated asset peaks and troughs.^[94] Critics of central planning note that such distortions favor debtors and financial intermediaries over savers, perpetuating instability absent market-determined rates, though mainstream models incorporating sticky wages can replicate booms under Taylor rules, suggesting policy amplification rather than sole origin.^[98] Historical patterns, including the 1920s credit expansion leading to the Great Depression and the 1990s dot-com surge amid Fed easing, underscore how bank rate interventions systematically engender these imbalances.^[99]

Moral Hazard and Favoritism Toward Debtors

Low interest rates set by central banks can foster moral hazard by signaling to financial actors that excessive risk-taking will be cushioned through future rate cuts or liquidity provision, thereby reducing the perceived costs of leverage and speculation. This dynamic, often termed the "Greenspan put" or more broadly the central bank put, incentivizes investors and firms to pursue high-risk strategies, anticipating intervention in downturns; for instance, empirical models show that systematic rate reductions in adverse shocks amplify this effect by lowering rates further in bad states while constraining hikes in good ones.^[100]^[101] During periods of accommodative policy, such as post-2008 quantitative easing (QE), U.S. banks exhibited heightened moral hazard through increased risk-taking, as stable deposit funding from low rates encouraged lax lending standards.^[102] A prominent manifestation involves the proliferation of "zombie firms"—unprofitable companies sustained by cheap credit that would otherwise fail—distorting resource allocation and stifling productivity. Between 2015 and 2019, low rates contributed to approximately 10% of U.S. public firms and 5% of private firms qualifying as zombies, defined by persistent inability to cover interest expenses from earnings; this share rose notably after rate declines, with studies linking lower rates directly to higher zombie incidence even after controlling for other factors.^[103]^[104] By 2022, estimates suggested up to 40% of publicly listed U.S. firms had become zombies due to prolonged low rates, perpetuating inefficiencies as these entities crowd out viable competitors via subsidized debt.^[105] Emergency lending facilities, like those deployed in crises, exacerbate this by creating adverse selection, where riskier borrowers anticipate bailouts, as evidenced in FDIC analysis of post-2020 programs.^[106] Monetary policy's favoritism toward debtors arises from sustained low rates, which erode savers' returns while enabling borrowers to service or expand debt at minimal cost, effectively redistributing wealth via financial repression. This penalizes prudence—households and institutions holding cash or bonds face near-zero yields amid inflation—while benefiting leveraged entities, including governments and corporations, as seen in QE's role in inflating asset values for debtors post-2009.^[107] Critics argue this biases capital toward speculation over productive investment, with central banks' crisis responses, such as the Federal Reserve's post-COVID actions, amplifying global moral hazard by reinforcing expectations of perpetual support, potentially at the expense of fiscal discipline.^[108]^[109] Empirical studies of QE confirm heightened bank leverage and risk, underscoring how such policies inadvertently prioritize debtor viability over systemic resilience.^[110]

Challenges to Central Bank Independence

Central bank independence, designed to insulate monetary policy from short-term political influences, has encountered persistent challenges from elected officials seeking to leverage low interest rates for electoral gains or fiscal relief. Empirical studies indicate that political pressure on central banks correlates with elevated inflation and heightened inflation expectations, with limited offsetting benefits to economic activity.^[111] For instance, in the United States, former President Donald Trump's public criticisms and threats to dismiss Federal Reserve Chair Jerome Powell during 2018-2020 exemplified direct interference, contributing to market volatility and underscoring risks to policy credibility.^[112] Similar patterns emerged globally, as in Turkey where President Recep Tayyip Erdoğan's repeated dismissals of central bank governors between 2018 and 2023 prioritized rate cuts despite surging inflation exceeding 80% in late 2022, illustrating how overt politicization undermines price stability.^[113] Fiscal dominance poses another structural threat, particularly in environments of elevated sovereign debt, where governments compel central banks to maintain accommodative policies to minimize borrowing costs, effectively subordinating monetary autonomy to fiscal needs. Research highlights that high public debt levels trap central banks into quasi-fiscal roles, such as bond purchases that blur the line between independence and debt monetization, as observed in advanced economies post-2008 financial crisis where quantitative easing programs expanded balance sheets to over 30% of GDP in cases like Japan and the Eurozone.^[114] In emerging markets, this dynamic intensified during the COVID-19 era; Argentina's central bank, under political directives, financed deficits leading to hyperinflation averaging 50% annually from 2019-2023, eroding institutional credibility and prompting capital flight.^[113] Empirical evidence from a panel of 56 countries spanning 1980-2012 shows that diminished independence heightens systemic financial risks, with politically influenced rate decisions amplifying boom-bust cycles.^[115] Expanded mandates beyond core inflation targeting—encompassing climate risk assessments, inequality mitigation, and financial stability—further strain independence by inviting broader stakeholder interference and diluting focus on price stability. Post-global financial crisis reforms, including the European Central Bank's integration of macroprudential tools, have prompted debates on mandate creep, with critics arguing it exposes central banks to fiscal-like pressures amid rising public debt-to-GDP ratios exceeding 100% in many OECD nations by 2023.^[116] Recent developments, such as U.S. proposals in 2025 to subordinate Federal Reserve decisions to executive oversight, signal populist challenges that could revert inflation persistence, as cross-country data from 1980-2020 links CBI erosion to persistent inflationary tails.^[117] These pressures underscore a tension between accountability and autonomy, where weakened independence historically correlates with higher long-term inflation variances across advanced and emerging economies.^[118]

Global Variations and Country-Specific Practices

United States

In the United States, the primary policy interest rate analogous to traditional bank rates is the federal funds rate, which represents the interest charged on overnight loans of reserve balances between depository institutions at Federal Reserve Banks. The Federal Open Market Committee (FOMC), comprising members of the Board of Governors and Federal Reserve Bank presidents, establishes a target range for this rate to influence broader monetary conditions in pursuit of its dual mandate of maximum employment and price stability.^[15]^[119] The effective federal funds rate, calculated as a volume-weighted median of actual transactions, typically trades within the FOMC's target range, enforced through the Federal Reserve's policy implementation tools.^[120] The FOMC adjusts the target range based on economic data, convening eight times annually to assess indicators such as inflation, unemployment, and GDP growth. As of September 17, 2025, the target range stands at 4.00% to 4.25%, following a 25-basis-point reduction from the prior level, with the effective rate around 4.11% in late October 2025.^[121]^[122] To achieve the target, the Federal Reserve employs open market operations—primarily purchasing or selling Treasury securities—to adjust reserve supply, alongside paying interest on reserve balances (IORB) to set a floor and offering overnight reverse repurchase agreements (ON RRP) to establish a ceiling for money market rates.^[123]^[124] These mechanisms replaced reliance on reserve requirements post-2008, as ample reserves in the banking system diminished their role in rate control.^[125] Historically, the federal funds rate framework evolved from informal targeting in the 1920s to explicit FOMC guidance after the 1951 Treasury-Fed Accord, which restored monetary policy autonomy from fiscal dominance.^[119] Rates peaked near 20% in the early 1980s to curb double-digit inflation but fell to near-zero during the 2008 financial crisis and 2020 pandemic response, prompting unconventional tools like quantitative easing.^[126] In 2022–2023, aggressive hikes from near-zero to over 5% addressed post-pandemic inflation exceeding 9%, demonstrating the rate's role in signaling tighter policy to anchor expectations and slow credit expansion.^[127] Subsequent easing in 2024–2025 reflected cooling inflation toward the 2% target, underscoring the rate's countercyclical application amid debates over its transmission lags and potential to amplify asset bubbles.^[121] The discount rate, set by the Board of Governors as a penalty rate for direct Fed borrowing, complements but does not supplant the federal funds mechanism, serving emergency liquidity needs.^[124]

United Kingdom

In the United Kingdom, the Bank Rate is the key interest rate set by the Bank of England (BoE) and paid on reserve balances held by commercial banks and other eligible institutions at the central bank. It serves as the primary instrument of monetary policy, influencing short-term interest rates across the economy to maintain inflation at a 2% target on a sustainable basis. The rate is adjusted to respond to economic conditions, such as demand pressures, supply shocks, and global events, thereby affecting borrowing costs, lending behavior, and overall economic activity.^[1]^[2] The Bank Rate is determined by the BoE's Monetary Policy Committee (MPC), an nine-member body comprising the Governor, four Deputy Governors, the Chief Economist, and four external members appointed by the Chancellor of the Exchequer. Established under the Bank of England Act 1998, the MPC operates with operational independence from the government, meeting eight times annually to vote on rate changes by simple majority; decisions are announced alongside minutes and, quarterly, a Monetary Policy Report detailing economic projections. This framework, introduced in 1997, aims to insulate policy from short-term political pressures, though critics have questioned its insulation amid fiscal-monetary coordination debates post-2008 and during the COVID-19 era.^[2]^[128] Historically, the Bank Rate has fluctuated significantly in response to economic cycles. It stood at 5% in the early 2000s before being cut to a low of 0.5% in March 2009 amid the global financial crisis, further reduced to 0.25% in August 2016 following the Brexit referendum, and held near zero through quantitative easing (QE) programs until inflation surged post-2021 due to pandemic supply disruptions and energy price spikes from the Russia-Ukraine conflict. The MPC raised the rate aggressively from December 2021, peaking at 5.25% by August 2023—the highest in 15 years—to combat inflation that reached 11.1% in October 2022. Subsequent cuts began in August 2024, bringing it to 5% in August, 4.75% in November 2024, 4.5% in February 2025, 4.25% in May 2025, and 4% by September 2025, reflecting easing inflationary pressures amid persistent services inflation and labor market tightness.^[4]^[129]^[5] As of October 2025, the Bank Rate remains at 4%, with the MPC voting 7-2 to hold steady in September, citing balanced risks but two members advocating a 0.25 percentage point cut to 3.75% due to softening wage growth and consumer spending. Markets price in potential further reductions, with an 78% probability of a December 2025 cut to 3.75%, influenced by CPI inflation holding at 3.8% in September 2025—above target but down from peaks—amid sticky domestic price pressures. The BoE complements rate adjustments with asset purchase or sales, though its balance sheet reduction slowed in 2025 to avoid market disruptions.^[130]^[131]^[5]

Eurozone

The European Central Bank (ECB), as the central bank for the euro area, establishes key policy interest rates that function as the monetary union's equivalent to a unified bank rate, applied uniformly across its 20 member states to influence liquidity, inflation, and economic activity. These rates include the deposit facility rate, the main refinancing operations (MRO) rate, and the marginal lending facility rate, reviewed by the ECB Governing Council approximately every six weeks. The deposit facility rate sets the floor for short-term market rates by remunerating banks' overnight deposits with the Eurosystem at 2.00% as of June 11, 2025.^[132]^[133] The MRO rate, at 2.15% effective from the same date, governs the fixed-rate tenders for weekly liquidity provision to eligible counterparties, anchoring the policy stance.^[132]^[133] The marginal lending facility rate, at 2.40%, provides the ceiling as a penalty rate for unsecured overnight borrowing from the ECB in emergencies.^[132]^[133] This corridor system, where the MRO rate sits midway between the deposit and marginal rates (with a 40 basis point spread to deposits and 25 to lending as adjusted in September 2024), guides interbank rates and broader credit conditions without direct control over retail lending.^[132] Unlike single-currency central banks, the ECB's rates must balance divergent economic conditions across member states, such as higher inflation in southern economies versus stagnation risks in northern ones, potentially amplifying transmission asymmetries. The ECB's primary mandate is price stability, targeting inflation "below, but close to, 2%" over the medium term, with rate adjustments responding to data on consumer prices, wage growth, and global factors.^[134]^[132] Historically, euro area policy rates have averaged 1.87% since 1999, peaking at 4.75% in October 2000 amid post-dot-com tightening and bottoming at 0.00% during the sovereign debt crisis and subsequent zero lower bound era.^[135] The deposit rate turned negative in 2014 (-0.10%) to combat deflationary pressures, reaching -0.50% by 2019 before reversal. In response to post-COVID inflation surging above 10% in 2022, the ECB hiked rates aggressively, lifting the deposit rate to 4.00% by September 2023. A cumulative 200 basis point easing cycle followed from June 2024 to June 2025, lowering it to 2.00%, with the Governing Council signaling a pause at the October 30, 2025, meeting amid stabilizing inflation projected at 2.1% for 2025 and 1.7% in 2026.^[136]^[137]^[135] In practice, these rates affect Eurozone banks' reserve management and lending spreads, with excess liquidity from quantitative easing programs (peaking at over €3 trillion in reserves) compressing the corridor's influence until hikes restored scarcity. Critics note that uniform rates exacerbate imbalances, as credit-dependent peripherals like Greece or Italy face tighter effective conditions than savers in Germany, though ECB asset purchases have mitigated fragmentation since 2012.^[132] The framework remains independent under the Maastricht Treaty, insulated from fiscal pressures, but subject to legal challenges over bond-buying extensions blurring monetary-fiscal lines.^[132]

Emerging Markets (e.g., India, Brazil)

In emerging markets, central bank policy rates, including bank rates where distinctly defined, serve as critical tools for managing persistent inflation pressures, volatile capital flows, and external shocks, often requiring more aggressive adjustments than in advanced economies due to shallower financial systems and greater sensitivity to commodity prices and global liquidity. These rates help stabilize currencies and curb imported inflation but can constrain credit growth and investment in resource-dependent economies. For instance, in India and Brazil, central banks have frequently hiked rates in response to domestic demand surges and fiscal expansions, though outcomes vary based on institutional credibility and structural reforms.^[138] The Reserve Bank of India (RBI) maintains a Bank Rate of 6.25% as of April 2025, primarily applied to long-term loans to commercial banks and as a penal rate for shortfalls in reserve requirements, distinct from the short-term repo rate of 5.50%. This rate supports broader monetary stability by signaling the cost of sustained borrowing, aiding in the control of liquidity overflows during periods of rapid credit expansion. In recent years, the RBI has aligned Bank Rate adjustments with inflation targeting under its flexible framework adopted in 2016, raising it amid post-pandemic supply disruptions and food price volatility, though it has avoided the extreme hikes seen elsewhere by leveraging macroprudential tools to mitigate transmission lags in a bank-dominated financial system.^[139]^[140]^[10] Brazil's Banco Central do Brasil (BCB) relies on the Selic rate as its primary policy instrument, targeting the overnight interbank lending rate, which stood at 15% following a 25 basis point hike in June 2025 to address unanchored inflation expectations and persistent core price pressures. Unlike a traditional bank rate for direct lending, the Selic influences the entire yield curve through open market operations, with historical peaks exceeding 40% in the late 1990s reflecting chronic hyperinflation legacies. Recent aggressive tightening cycles, including hikes from near-zero levels post-2020 to nearly 14% by 2023, succeeded in curbing inflation but exacerbated fiscal strains and currency depreciation, as high public deficits eroded policy credibility and fueled dollar outflows.^[141]^[142]^[143] Both countries illustrate emerging market dilemmas: India's relatively anchored expectations have allowed moderated rate paths despite monsoon-dependent agriculture driving food inflation, enabling 7-8% GDP growth projections for 2025, while Brazil's higher Selic reflects weaker fiscal anchors and commodity export reliance, leading to growth moderation to around 2.2% amid tighter credit. Central banks in these contexts face amplified risks from U.S. Federal Reserve spillovers, where global rate divergences trigger capital flight, necessitating forward guidance and reserve buffers to preserve autonomy.^[144]^[145]^[146]

Other Notable Examples (e.g., Australia, Canada)

In Australia, the Reserve Bank of Australia (RBA) sets the cash rate target, which serves as the benchmark interest rate for overnight loans between banks and anchors broader monetary policy aimed at achieving an inflation target of 2-3% on average over time.^[147] The RBA adjusts this rate through open market operations to influence short-term interest rates, with decisions announced after board meetings typically held eight times per year.^[147] Historically, the cash rate reached a peak of 17% in November 1989 amid efforts to curb double-digit inflation exceeding 7%, marking one of the most aggressive tightening cycles in developed economies.^[148] During the COVID-19 crisis, the RBA lowered the target to 0.10% in November 2020, introducing yield curve control and quantitative easing to support economic recovery, before gradually hiking it to 4.35% by November 2023 in response to post-pandemic inflation pressures.^[149] As of August 13, 2025, the target stands at 3.60% following successive 25-basis-point cuts, reflecting easing inflationary pressures while maintaining vigilance against persistent services inflation.^[150]^[151] Canada's Bank of Canada (BoC) establishes the target overnight rate, the key policy rate influencing short-term market rates and serving as the foundation for monetary policy to keep inflation near 2% over the medium term.^[152] The BoC implements changes via daily operations in the overnight market, with announcements scheduled on eight fixed dates annually to provide predictability.^[152] Unlike the U.S. Federal Reserve's federal funds rate corridor, Canada's framework emphasizes a single target rate supported by deposit and lending rate bands, fostering stability in interbank lending.^[152] Notable historical adjustments include rapid hikes to over 14% in the early 1980s to combat inflation above 12%, and during the 2008 financial crisis, cuts to 0.25% accompanied by forward guidance and asset purchases.^[153] In response to 2022 inflation peaking at 8.1%, the BoC raised the target to 5.00% by July 2023, then initiated cuts amid slowing growth, holding at 2.75% through July 2025 before reducing to 2.50% in September 2025 as core inflation moderated toward target.^[154]^[155] This path diverges from the U.S., where rates remain higher at 4.25-4.50% due to stronger economic resilience and wage pressures.^[156]

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Aug 20, 2024 · The Fed aims for maximum employment, stable prices, and moderate rates. The current target range is 5-1/4 to 5-1/2 percent, with inflation ...
[76]
Federal Funds Rate History 1990 to 2025 – Forbes Advisor
Sep 18, 2025 · Fed Rate Hikes 2022-2025: Taming Inflation and Beyond ; July 26, 2023. +25. 5.25% to 5.50% ; May 3, 2023. +25. 5.00% to 5.25% ; March 22, 2023. +25.
[77]
[PDF] Monetary policy in the face of supply shocks: the role of inflation ...
Monetary policy can achieve that with some lag, but only by lowering aggregate demand, which will reduce output and raise unemployment.15. 1.2. Second-round ...
[78]
[PDF] The Asymmetric Effects of Monetary Policy on Job Creation and ...
Tight monetary policy increases job destruction, while easy policy is ineffective in stimulating job creation. Net employment change responds more to increases ...
[79]
Transmission of US monetary policy to the labour market - SUERF
Dec 15, 2023 · Our empirical evidence suggests that US monetary policy is currently not less effective than in past cycles in steering unemployment. Much of ...<|separator|>
[80]
[PDF] Is There a Stable Relationship between Unemployment and Future ...
We find that a 1 percentage point increase in the unemployment rate is associated with a roughly 0.3 percentage point decline in inflation over the next year.
[81]
[PDF] The Relationship between Monetary Policy and Asset Prices
A lower interest rate decreases the cost of borrowing, raises in- vestment levels (say for firms or home-buyers), and thus raises the asset price. Using a VAR ...
[82]
Central bank announcements of asset purchases and the impact on ...
In this paper we present empirical evidence on the impact of these asset purchase programs on domestic as well as international financial asset prices in order ...
[83]
Quantitative easing and housing inflation post-COVID | Brookings
Oct 8, 2025 · The thesis is that the Fed's large purchase of MBS, implemented as part of QE from 2020 to 2022, contributed to home price appreciation, causing ...
[84]
[PDF] Does Expansionary Monetary Policy Cause Asset Price Booms
In section V below we present some evidence consistent with the loose monetary policy explanation for asset price booms and also the Austrian BIS view that ...
[85]
[PDF] Asset price crises and banking crises: some empirical evidence
When looking at the effect of banking crises on the equity market, we observe mixed evidence of banking crises leading to large equity price falls. But we ...
[86]
[PDF] How does monetary policy affect income and wealth inequality ...
This paper contains research conducted within the Household Finance and Consumption Network (HFCN). The HFCN consists of survey specialists, statisticians and ...
[87]
Monetary Policy's Distributional Effects – IMF F&D
Whether, at the same time, these policies exacerbate inequality, however, is up for debate. Monetary policy is seen, in part, as responsible for boosting equity ...
[88]
Monetary policy and inequality: Distributional effects of asset ...
We study the distributional effects of central bank asset purchase programs (APPs) using local projections for a panel of 49 countries from 1999 to 2019.
[89]
[PDF] Central bank policies and income and wealth inequality: A survey
This paper takes stock of the literature on the relationship between central bank policies and inequality. A new paradigm which integrates sticky-prices, ...<|separator|>
[90]
How central bank's interest rate rises affect the richest and poorest ...
Sep 21, 2022 · José-Luis Peydró explains how low interest rates from banks can increase inequality ... Received wisdom has it that low rates boost economic ...
[91]
Austrian Business Cycle Theory, Explained - Mises Institute
Jul 9, 2019 · The “boom-bust” cycle is generated by monetary intervention in the market, specifically bank credit expansion to business.
[92]
Austrian Theory of Business Cycles - Auburn University
The natural rate of interest is the rate that equates saving and investment. The bank rate diverges from the natural rate as a result of credit expansion.
[93]
[PDF] The financial cycle and macroeconomics: What have we learnt?
The financial cycle is key to understanding business fluctuations, described by credit and property prices, with a lower frequency than the business cycle, and ...<|separator|>
[94]
[PDF] Monetary policy and stock market boom-bust cycles
Boom-bust cycles, where stock prices rise then crash, are linked to monetary policy, especially interest rate cuts, and can be welfare-reducing. Credit growth ...
[95]
Monetary Policy and the Housing Bubble - Federal Reserve Board
Dec 22, 2009 · And indeed, researchers are increasingly suggesting that loose monetary policy was a primary cause of the bubble in house prices and activity.
[96]
The Role of the Federal Reserve in the U.S. Housing Crisis: A VAR ...
Jul 23, 2019 · This prompted them to conclude that the Federal Reserve helped cause the housing bubble by lowering the interest rate and holding it down ...
[97]
[PDF] Low Interest Rates and Housing Bubbles: Still No Smoking Gun
Jan 1, 2012 · Consequently, the observation that house prices rise when interests rates fall is not by itself evidence that low interest rates cause bubbles.
[98]
[PDF] Monetary Policy and Stock Market Boom-Bust Cycles∗
Oct 21, 2006 · A monetized model with sticky wages and a Taylor rule can generate boom-bust cycles, suggesting monetary policy may be a factor in stock market ...
[99]
Boom or Bust: The Austrian Theory of the Business Cycle | YIP Institute
Jun 21, 2021 · As a result, the distortion of the natural interest rate misleads producers and investors to believe that there is an increase in real savings, ...
[100]
[PDF] Moral Hazard Misconceptions: the Case of the Greenspan Put
This means that, starting from pure output gap stabilization, the central bank's incentive is to further lower interest rates in the bad state and to further.
[101]
[PDF] Moral Hazard Misconceptions: the Case of the Greenspan Put
Suppose that when an adverse shock hits and drives down asset prices, the central bank intervenes systematically by lowering interest rates. This becomes an ...<|separator|>
[102]
https://papers.ssrn.com/sol3/papers.cfm?abstractid=3995751
[103]
The Fed - U.S. Zombie Firms: How Many and How Consequential?
Jul 30, 2021 · As shown in Figure 1, between 2015 and 2019, our filters select roughly 10 percent of public firms and five percent of private firms as zombies.
[104]
The rise of zombie firms: causes and consequences
Sep 23, 2018 · Our results indeed suggest that lower rates tend to push up zombie shares, even after accounting for the impact of other factors. Third, what ...Missing: moral | Show results with:moral<|control11|><|separator|>
[105]
The Federal Reserve Understates the Proliferation of Zombie ...
Jun 9, 2022 · We found that about 40% of publicly listed US companies are zombies. The proliferation of zombie companies started with low interest rates.
[106]
[PDF] Emergency Lending and Moral Hazard - FDIC
Aug 27, 2025 · In this paper, we presented novel evidence on the adverse moral hazard effects of emergency lending facilities.
[107]
Does Monetary Policy Create Injustice?
Sep 13, 2024 · How else can Christians interpret these actions besides a form of favoritism toward the rich and prejudice against the poor? As Dr. Anne Bradley ...
[108]
Moral hazard, the fear of the markets, and how central banks ... - CEPR
Jan 28, 2021 · The results suggest that the Fed's relative global role has been strengthened, possibly at the cost of increased moral hazard. Authors. Jean- ...
[109]
The Moral Hazard of Lower Interest Rates - Project Syndicate
Jun 6, 2024 · When interest rates decline and stabilize, financial-market participants tend to take on greater leverage and risk.
[110]
Quantitative Easing Policy and Moral Hazard Behaviour of U.S. Banks
Dec 29, 2021 · PDF | In this paper I investigate the risk-taking channel of the monetary policy in the U.S. during the period of Large Scale Assets ...
[111]
The economic consequences of political pressure on the Federal ...
Jan 22, 2024 · The shock induces a monetary easing, with a roughly 100 basis points lower interest rate after a few quarters. The price level response to the ...
[112]
Mantra of central bank independence shaken by Trump moves on Fed
Aug 26, 2025 · U.S. President Donald Trump's attacks on Federal Reserve policymakers are emerging as the biggest threat in decades to central bank ...
[113]
Central banks should be independent of government. But our ...
Sep 12, 2024 · For example, in Argentina and Turkey, political pressure on central banks to finance budget deficits has resulted in poor policy decisions, ...<|separator|>
[114]
Government Debt Is the Real Threat to Central Bank Independence
Jul 30, 2025 · Unsustainable government debt eventually traps a central bank. Markets start demanding higher yields to compensate for default risk or higher ...
[115]
The relationship between central bank independence and systemic ...
This study investigates the relationship between central bank independence and financial stability in a global sample covering 56 countries from 1980 to 2012.
[116]
[PDF] Occasional Paper Series - The case for central bank independence
This Occasional Paper analyses how significant expansions in central banks' mandates, roles and instruments can result in challenges to the independence of.
[117]
It matters even more: Central bank independence, long-run inflation ...
Feb 18, 2025 · However, the empirical literature on the effects of central bank independence on inflation provides conflicting evidence (Rossi et al. 2021) ...
[118]
Central bank independence and inflation tail risks—Evidence from ...
Our findings provide ample evidence showing that higher levels of central bank independence make inflation tail risks less likely, while eroding independence ...
[119]
Federal Funds Rate - Federal Reserve History
The federal funds rate is the interest rate on loans of funds held mainly by banks and other financial institutions in accounts at the Federal Reserve Banks.
[120]
Effective Federal Funds Rate - Federal Reserve Bank of New York
The effective federal funds rate (EFFR) is calculated as a volume-weighted median of overnight federal funds transactions reported in the FR 2420 Report.
[121]
Federal Reserve issues FOMC statement
Sep 17, 2025 · ... funds rate by 1/4 percentage point to 4 to 4‑1/4 percent. In considering additional adjustments to the target range for the federal funds rate ...<|separator|>
[122]
Effective Federal Funds Rate (Market Daily) - United States…
View market daily updates and historical trends for Effective Federal Funds Rate ... October 23, 2025, 4.11%. October 22, 2025, 4.11%. October 21, 2025, 4.11%.
[123]
Open Market Operations - Federal Reserve Board
Before the global financial crisis, the Federal Reserve used OMOs to adjust the supply of reserve balances so as to keep the federal funds rate--the interest ...<|separator|>
[124]
Policy Tools - Federal Reserve Board
May 20, 2024 · The Federal Reserve has a variety of policy tools that it uses in order to implement monetary policy. Open Market Operations · Discount Window ...Missing: procedures | Show results with:procedures
[125]
How the Fed Implements Monetary Policy with Its Tools
Because banks will not likely borrow at a higher rate than they can borrow from the Fed, the discount rate acts as a ceiling for the federal funds rate.
[126]
Federal Funds Effective Rate (FEDFUNDS) | FRED | St. Louis Fed
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other ...
[127]
Federal Funds Rate History: 1980 Through The Present - Bankrate
Jul 30, 2025 · The fed funds rate began the decade at a target level of 14 percent in January 1980. By the time officials concluded a conference call on Dec. ...Missing: reforms | Show results with:reforms<|control11|><|separator|>
[128]
Interest rates and monetary policy: Economic indicators
Sep 18, 2025 · On 18 September, the Bank of England's Monetary Policy Committee (MPC) announced it had left interest rates unchanged to 4.0%. The MPC vote was ...
[129]
https://www.bbc.com/news/articles/c3dky111m40o
[130]
Bank Rate maintained at 4% - September 2025
Sep 17, 2025 · Two members voted to reduce Bank Rate by 0.25 percentage points, to 3.75%. The Committee voted by a majority of 7–2 to reduce the stock of UK ...
[131]
https://www.reuters.com/world/uk/uk-investors-add-boe-rate-cut-bets-inflation-unexpectedly-holds-38-2025-10-22/
[132]
Key ECB interest rates - European Union
The three official interest rates the ECB sets every six weeks as part of its monetary policy to steer the provision of liquidity to the banking sector.
[133]
ECB Interest Rates | Central Bank of Ireland
Current rates effective 11 June 2025 · Deposit Facility: 2.00% · Main refinancing operations (Fixed Rate Tender): 2.15% · Marginal Lending: 2.40%.
[134]
ECB refinancing rate - Euribor
One of the main tasks of the ECB is safeguarding price stability in the Euro-zone. The objective is to keep inflation around but below a rate of 2% a year.
[135]
Euro Area Interest Rate - Trading Economics
Interest Rate in Euro Area averaged 1.87 percent from 1998 until 2025, reaching an all time high of 4.75 percent in October of 2000 and a record low of 0.00 ...
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https://www.reuters.com/business/ecb-pause-rates-least-until-2027-steady-inflation-growth-outlook-2025-10-22/
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https://global.morningstar.com/en-eu/economy/ecb-rate-decision-what-expect-oct-30
[138]
Emerging market challenges - Brookings Institution
Mar 29, 2023 · Challenges to Disinflation: The Brazilian Experience The central bank had to raise interest rates significantly to bring inflation down and ...
[139]
RBI Issues April 2025 Policy Update
Apr 9, 2025 · The Marginal Standing Facility (MSF) rate and the Bank Rate have both been revised to 6.25 per cent. MSF stands for Marginal Standing Facility, ...
[140]
Current Repo and Reverse Repo Rate 2025: Meaning, Impact ...
Aug 6, 2025 · Currently, the Reserve Bank of India (RBI) has maintained the repo rate at 5.50%. Read on to know more about the repo rate in India, its impact, ...
[141]
Selic interest rate - Banco Central
Selic interest rate. The Selic rate is the benchmark interest rate for the Brazilian economy. It influences rates used in loans, financing and investments.
[142]
Brazil Interest Rate - Trading Economics
The Central Bank of Brazil hiked its Selic rate by 25bps to 15% at its June meeting, citing persistent inflation and unanchored expectations. The Board ...
[143]
Interest rate policy decisions - Banco Central
Historical interest rates set by the Copom meeting and evolution of the Selic rate. Meeting, Validity period, Selic target % p.y. (2)(4), TBAN % p.m.
[144]
Brazil Overview: Development news, research, data | World Bank
Oct 15, 2025 · Growth is expected to moderate to 2.2% in 2025 due to higher interest rates and an adverse external environment, with household consumption ...Missing: India | Show results with:India<|control11|><|separator|>
[145]
Comparing the Economic Outlook for India and Brazil: How They Differ
Brazil has an abundance of natural resources and a large workforce; however, its high inflation rate, corruption, and debt issues have hampered the nation's GDP ...
[146]
Did interest rate guidance in emerging markets work? - ScienceDirect
Central banks in emerging market economies experimented with explicit interest rate guidance during 2020-2021. We explore the effectiveness of this policy.
[147]
Cash Rate Target - Reserve Bank of Australia
The cash rate target is the interest rate on overnight loans between banks, set by the RBA as part of monetary policy. The current target is 3.60% as of 13 Aug ...Cash Rate Methodology · Cash Rate Assumption Method · Lenders' Interest Rates
[148]
History of RBA Cash Rate in Australia - InfoChoice
When the Reserve Bank of Australia (RBA) raised the cash rate to a crippling 17% in 1989, it made homeownership for many Baby Boomers a financial nightmare.Interest Rate Movements History · What does the RBA cash rate...
[149]
The Reserve Bank of Australia's policy actions and balance sheet
A reduction in the cash rate target to 25 basis points. This is the level the Reserve Bank Board has assessed to be the lower bound for the target cash rate in ...
[150]
Australia Interest Rate - Trading Economics
The Reserve Bank of Australia kept its cash rate unchanged at 3.6% at its September 2025 meeting, in line with market expectations and following a 25bps cut ...
[151]
RBA Official cash rate | Policy rate Australian Central Bank
This page shows the current and historic values of the Official Cash Rate (Cash Rate Target) as set by the Australian Central Bank (Reserve Bank of Australia, ...
[152]
Policy interest rate - Bank of Canada
The Bank carries out monetary policy by influencing short-term interest rates. It does this by adjusting the target for the overnight rate on eight fixed dates ...Rate Announcement · Canadian interest rates · A history of the key interest rate
[153]
Bank of Canada Interest Rate 1935-2025 | WOWA.ca
The Bank of Canada (BoC) has reduced its policy rate by 0.25%, bringing it to 2.50%, as it continues to navigate persistent core inflation and growing economic ...
[154]
Canada Interest Rate - Trading Economics
The Bank of Canada held its benchmark interest rate unchanged at 2.75% in its July 2025 decision, as expected by markets, to mark the third hold following 2.25 ...
[155]
Overnight Lending Rate in Canada | Ratehub.ca
Sep 18, 2025 · The Overnight Lending Rate in Canada is currently at 2.50%. This rate, also referred to as the Bank of Canada's policy interest rate, key ...
[156]
Central Banks - current and historical interest rates
An important instrument that central banks use for their monetary policy is the base rate (policy rate). ... BOE Official Bank Rate · ECB Refi Rate · FED Federal ...