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Q. Central bank overnight interest rate?

Overnight interest rate is a significant interest rate for a central bank and it has methods of influencing this rate. In most nations, central bank signals what it would like the overnight rate to be. For illustration, in U.S., this rate is the federal funds rate. If overnight rate steers away from the federal funds rate, Federal Reserve will take action to steer it back towards federal funds rate.

In addition to signalling a desired overnight interest rate, most central banks have 'standing facilities' for overnight loans. For instance, ECB has a 'deposit facility' and a 'marginal lending facility' that member banks can use for deposits and for lending overnight. Overnight interest rate should consequently be in between the deposit rate and marginal lending rate. Characteristically overnight rate is far from the deposit and lending rates and standing facilities are rarely used.

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9577317

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