Policy Rate

Policy rate means the key interest rate set by a central bank. In simple terms, the policy rate is the main rate a central bank uses to influence borrowing, spending, inflation, and the economy. The policy rate is important because it can affect many other interest rates, including loans, mortgages, credit cards, savings accounts, and business borrowing. When a central bank raises the policy rate, borrowing usually becomes more expensive. When it lowers the policy rate, borrowing usually becomes cheaper. For example, when the Fed changes its target interest rate, that decision can influence borrowing costs across the U.S. economy. The policy rate is not the same as every interest rate in the economy. It is a key rate set by the central bank, but actual rates for consumers and businesses can also depend on banks, credit risk, loan terms, and market conditions.