What is a central bank base rate? How interest rates are set
By SendPay Business · · 2 min read
A central bank base rate is the main interest rate a country's central bank sets. It influences what banks charge each other, and so what they charge borrowers and pay savers across the whole economy.
Who sets it
In the UK, the Bank of England's Monetary Policy Committee sets Bank Rate, often called the base rate. In the US, the Federal Reserve sets a target range for the federal funds rate. In the euro area, the European Central Bank sets its key interest rates. Each publishes its decisions on a set schedule.
How a rate change feeds through
- The central bank raises or cuts its rate.
- Banks' own borrowing costs move with it.
- Loan, mortgage and savings rates tend to follow.
- Spending, prices and the currency's exchange rate respond over time.
Why central banks move rates
Most central banks aim to keep inflation near a target, which is 2% for the Bank of England, the Federal Reserve and the European Central Bank. Raising rates tends to cool spending and inflation; cutting them tends to support borrowing and growth.
Where SendPay fits
SendPay does not pay interest or offer loans. A SendPay platform lets your customers hold GBP, EUR and USD, send transfers and exchange currency at a fee you set, powered by licensed partners.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.