Economic concept
Policy rate
The short-term interest rate directly influenced by a central bank.
All conceptsSee it at work
Why does raising interest rates tend to reduce inflation?
Higher policy rates feed into borrowing costs, saving returns, asset prices, exchange rates and credit supply. Spending and investment tend to weaken, easing demand pressure - but with long, variable and uncertain lags.
See it at workWhy does raising interest rates affect mortgages?
Central banks set a short-term policy rate, not each mortgage. That decision changes market yields, bank funding, expectations and credit demand. Variable mortgages can reset quickly; fixed mortgage rates reflect longer-term yields and may move before or differently from the policy rate.