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What are the Central bank overnight interest rates

The overnight interest rate is an important interest rate for a central bank and it has methods of influencing this rate. In most countries, the central bank signals what it would like the overnight rate to be. For example, in the United States, this rate is the federal funds rate. If the overnight rate steers away from the federal funds rate, the Federal Reserve will take action to steer it back towards the federal funds rate.

In addition to signaling a desired overnight interest rate, most central banks have "standing facilities" for overnight loans. For example, the ECB has a "deposit facility" and a "marginal lending facility" that member banks can use for deposits and for lending overnight. The overnight interest rate must therefore be in between the deposit rate and the marginal lending rate. Typically, the overnight rate is far from the deposit and lending rates and standing facilities are rarely used.

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9582418

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