ECB Interest Rate Decision
The interest rate (key rate) — is the main indicator of credit resources’ value in the economy.
The key rate is the rate by which the commercial banks can be credited from each other or at the central bank. In general, it talks about short-term borrowings for one night (overnight credits).
The level of the Central Bank’s rate directly influences all rates in the economy: both credit rates and deposit rates. Changing the amount of rate, the Central Bank can soften or tighten the monetary policy depending on the current goals. In turn, the changes in the policy of the Central Bank influence employment, GDP, inflation, and many other macroeconomic indicators.
The financial regulator reduces the key rate and 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 growth of prices threatens the stability of the financial system, the Central Bank tightens the monetary policy. The rise of the interest rate makes credit resources less available, leads to the slowdown and downturn, and exerts pressure on inflation.
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