Markets
The key interest rate is the rate set by a central bank, the ECB for the euro area, at which commercial banks borrow central-bank money. It indirectly steers the rates on loans, savings and bonds and influences equity valuations.
The key interest rate is the central rate set by a central bank, the European Central Bank in the case of the euro area. It is the rate at which commercial banks can obtain central-bank money.
Through this price of money, the central bank indirectly steers the general level of interest rates. When the key rate changes, it gradually feeds through to the terms of loans and to the interest paid on instant-access savings, fixed-term deposits and bonds.
The level of interest rates also affects the valuation of shares: higher rates tend to make safe interest-bearing investments more attractive and can weigh on prices. Monetary policy is therefore an important tool the central bank uses to respond to the economy and to inflation.
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