The central bank rate is the interest rate that central banks charge domestic banks on loans. The rate that the commercial banks are charged directly affects the interest rates they offer to consumers on loans and credit vehicles.
Central banks are usually tasked with maintaining a stable level of inflation, and the central bank rate is one of the tools they use to do so. If central banks keep the rates too low, cheap credit floods the market and leads to bad decisions and inflation. If the central bank rate is too high, credit dries up and businesses run into funding problems, slowing the economy.
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