Directing rate

The directing rates are the Interest rates from day to day fixed by the Central bank of a country or a monetary union, and which makes it possible this one to control the economic activity.

There exist three directing rates (which can take different names according to the countries) (of weakest with highest):

the Rate of remuneration of the deposits
the Rate of refinancing (“rate refi”)
the Discount rate or Rate of the marginal loan

These rates are those by which are remunerated the surpluses of liquidities of the Banque S and financial institutions placed near the central bank (Rate of remuneration of the deposits), and the rate from which can borrow these same economic agents near the central bank (Taux of refinancing and Discount rate).

The directing rates allow, by fixing the “cost of the money” on the Money market, to control the economic Investissement and thus to encourage the Economic activity during the time of hollow, or to slow down the over-investment (in nonprofitable projects) for the periods of inflationary overheating.

Financial incidences of the directing rate

Many rates of credit and short-term saving are more or less narrowly correlated on the Taux of refinancing. Indeed, the trade banks borrow from the central banks at the directing rate, and lend again the funds a little expensive. Thus, at the beginning of 2005, the European Central bank (ECB) ready to 2% (today to 4%) at the banks, which are lent again between them on the interbank market in the neighborhoods of 2,02% per day (index EONIA).

That joined the concept of Curve of rate.

The central bank has two average equivalents to influence the credit charges. Either she primarily exploits the rate (method used by the American Federal fund) without varying significantly lent volumes, or she exploits the volumes lent without touching at the rate (method ECB). The goal being to influence average rate while making the money more or less available or expensive.

Macroeconomic incidences

It is thus as well as the central bank acts on the credit charges and the remuneration of the liquidities, within the framework of its Monetary policy to control supply and demand of Crédit, the trend of prices (Inflation) and the Foreign exchange rate of its currency.

Indeed, concerning the offer and the application for credit, the rate from which borrows a commercial bank near the central bank (for example 4%) is reflected, on the households or the companies, ata slightly higher rate (for example 4% (rate of the central bank) +1% (margin of the commercial bank), are ata rate of 5%), but only for the short-term loans (the rates of the central bank are short rates). Thus, the directing rates fixed by the central bank indirectly influence the Interest rate which will be proposed with the households and the companies by the trade banks. Interest rate being one of the determinants of the decisions of Investment (when they are financed by a credit), the central bank controls the investment, and can thus reduce the over-investment lorqu' it takes place, or encourage the investment during the time of economic hollow.

In addition, the directing rates fixed by the central bank have an influence on the Foreign exchange rate of a currency. Indeed, a rise of interest rates implies a better profitability of the loan for the lender (by ex rise of the interest rate from 2% to 4%). The possible lenders thus will tend to move towards this market. By doing this, they will buy titles on this market (for example of the obligations of company or State with 4%. Let us recall that by buying obligations, one " prête" money). However, these titles are made out in a particular currency (by ex the Euro). Thus the demand for this currency will become keener, and its value will rise on the Foreign exchange market (foreign exchange market). Thus, a rise of interest rate can tend to increase the value of a currency on the foreign exchange market.

Rate of the ECB

See too

External bonds

world directing principal rates, site of the Echoes
directing rates of the ECB, official site

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