ECB Marginal Lending Facility
The interest rate, or the key rate, is the main indicator of borrowing costs in the economy. The key rate is the rate at which commercial banks can borrow from other banks or from the central bank. In general, it refers to short-term borrowings for one night (overnight loans). The level of the Central Bank’s rate directly influences all rates in the economy: both credit and deposit ones. By changing the rate level, the regulator may ease or tighten the monetary policy depending on its current goals. In turn, the changes in the policy of the Central Bank influence employment, GDP, inflation, and many other macroeconomic indicators. When the financial regulator reduces the key rate, the monetary policy softens. Less expensive credit resources can help the economy to recover from recession — restore the business activity, decrease unemployment, increase the GDP growth rate. In case the pace of price growth threatens the stability of the financial system, the Central Bank tightens its monetary policy. The rise of the interest rate makes credit resources less available, leading to economic slowdown and curbing inflation.
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