Policy rate
Also written: interest rate decision, fed funds rate, bank rate
The interest rate a central bank sets, which cascades into the rates paid by everyone else.
A central bank does not set the rate on your mortgage directly. It sets the rate at which banks lend to each other overnight, and that rate propagates through the system into savings accounts, business loans and mortgages.
Raising it makes borrowing more expensive, which slows spending and, in theory, inflation. Lowering it does the opposite. The lag between the decision and its effect on prices runs to several quarters, which is why central banks argue about the future rather than the present.
The usual mistake. It is not one comparable object across countries. The US Federal Reserve publishes a target range rather than a single figure; the European Central Bank has three rates; China has no single policy rate at all. Putting them in one column without a note misleads.
See also
This definition is part of the EPTA5 lexicon, written so that a reader who does not work in finance can follow our market notes without stopping. It is general information and not investment advice. Read the notes.