Interest Rates & Central Banks
A central bank sets the benchmark interest rate — the price of borrowing money in an economy. It is the single most powerful lever over growth, inflation, and asset prices.
Central banks such as the US Federal Reserve, the European Central Bank, and the Bank of Thailand set a policy rate that feeds through to what banks charge each other, and from there into mortgages, business loans, and savings rates across the economy.
Raising rates makes borrowing more expensive and saving more attractive, which cools spending and, in time, inflation. Cutting rates does the reverse, encouraging borrowing and investment to support a weakening economy. The effect is slow and imprecise, often taking many months to work through.
When rates are already near zero, central banks reach for other tools. Quantitative easing buys bonds to push down longer-term borrowing costs. Forward guidance uses communication itself as policy, steering expectations about where rates will go next.
Rates drive markets directly. Higher rates raise the return available on cash and bonds, which makes riskier assets relatively less attractive, and they lower the present value of future company earnings. Rate differentials between countries are also a primary driver of currency moves.
TrustFinance News covers central bank meetings and rate decisions in its economic calendar, alongside the market reaction to each.