Base rate
| interest rate | height |
|---|---|
| European Central Bank (valid from: September 18, 2019) | |
| Deposit rate (deposit facility) | −0.50% |
| Base rate (main refinancing operations) | 0.00% |
| Marginal lending rate (marginal lending facility) | 0.25% |
| Swiss National Bank (valid from: June 13, 2019) | |
| SNB policy rate | −0.75% |
| Federal Reserve System (effective March 16, 2020) | |
| Federal funds rate target range | 0.0 to 0.25% |
| Primary Credit Rate | 0.25% |
| Bank of Japan (effective December 19, 2008) | |
| Discount rate (basic discount / loan rate) | 0.30% |
| Bank of England (effective March 19, 2020) | |
| Official Bank Rate | 0.1% |
| Chinese People's Bank (valid from: February 20, 2020) | |
| Discount rate (one-year lending rate) | 4.05% |
The key interest rate is the interest rate unilaterally set by a central bank as part of its monetary policy , at which it concludes business with its affiliated credit institutions .
General
The key interest rate is the central instrument for controlling monetary policy, because as a price it has a direct influence on the borrowing and investments of commercial banks at the central bank. Since the key interest rates have a direct effect on interbank trade , the money market is also affected by the key interest rate policy of the central banks. Ultimately, the key interest rate policy also has an impact on the economy as a whole , contractually when interest rates rise and expansive when interest rates fall.
species
Internationally, every central bank has developed its own key interest rate mechanism. In England after the Second World War the orientation was based on the " minimum lending rate " (called " base rate ") and the repo rate of the Bank of England , in the USA on the " prime rate " and the nominal federal funds rate of the Federal Reserve Bank . Nothing has changed to this day. In Germany, the Deutsche Bundesbank set the discount rate and Lombard rate , with the latter becoming increasingly important.
history
The main aim of the Bundesbank's policy was to control the credit supply behavior of banks and the demand for money and credit in the economy indirectly through changes in bank liquidity and interest rates on the money market . This was derived from § 15 BbankG, which granted the Bundesbank the right to set the discount rate to influence the circulation of money and the granting of credit. The (re-) discount business resulted from § 19 BbankG. The (re-) discount volume reached its peak in 1979/1980 and became the decisive source of central bank money supply. In December 1986 the share of discount credit in borrowing had fallen to 60%. Until 1987, the discount rate played the decisive role in the refinancing of credit institutions by the Bundesbank and as the key interest rate, because the banks were able to obtain liquidity at the discount rate by selling bills of exchange eligible for the Bundesbank . The function of a reference interest rate was assumed by the discount rate because it was mentioned as a reference value in contracts and laws. Since 1987 the discounting of bills of exchange had lost its importance, so that the Lombard rate came to the fore. In comparison to the new open market policy instruments of the Bundesbank, bill refinancing gradually took a back seat; Their share of total central bank loans was only 29.5% in 1994, compared to 83.5% in 1980. They were replaced by repo transactions . While their share of total refinancing was only 6% in 1980, in 1994 they made up 69.7%.
As a result of the European Monetary Union , the Bundesbank also lost its legal power to set the key interest rates to the European Central Bank . It has been responsible for determining the key interest rate since January 1999 and has decided on three aggregates , namely an interest rate for the main refinancing business , for the marginal lending facility and for the deposit facility . In addition, it strengthened its range of instruments through open market operations in the euro area .
As of January 1999, the discount rate in Germany, insofar as it was used as a reference rate for interest and other services in contracts and regulations, had to be replaced by the base rate in Section 247 (1) BGB . The base rate has been permanently determined since January 2002 when the law for the modernization of the law of obligations came into force.
Determination of the base rate
The decision on changing the key interest rate is incumbent on the responsible body of a central bank. At the ECB this is the ECB Council , at the Bundesbank it was the Central Bank Council . Since the Bundesbank has only been an executive body of the ECB with regard to setting the key interest rates since January 1999, the Central Bank Council has been deprived of its duties to set the key interest rate. It was therefore abolished as an organ in April 2002. The Governing Council decides on the timing, extent and direction (increase / decrease) of key interest rates.
Functions of the base rate
Measures by the central banks must be autonomous (only dependent on the decision of the central bank), reversible (both increases and decreases are possible) and flexible (can be used and withdrawn at any time) and trigger an obligation to contract with the affiliated commercial banks. The key rate does not always fulfill these functions.
Monetary policy control tool
The key interest rate is the price at which credit institutions can obtain central bank money from central banks . In the area of the ECB, the change in key interest rates has a signal effect on the economies of the member states. An increase in the key interest rate makes it more expensive for banks to procure liquidity, so that they are forced to pass this increase on to their bank customers if they do not want to accept any loss of profit. Conversely, if the key interest rate is cut, it is easier for commercial banks to borrow money, which enables them to pass it on to their bank customers. In this way, the key interest rate also indirectly influences price developments , because low key interest rates harbor a risk of inflation and vice versa. In a monetary policy that aims to keep its key interest rate permanently low, from low interest rate policy terms, it is the opposite, is of high interest rate policy speech.
The key interest rate also influences the money creation of the credit institutions in that a key interest rate increase restricts the money creation possibilities of the institutions and vice versa. The ability of banks to create money has an impact on the money supply . If the central bank wants to restrict the money supply, it can do so indirectly by raising the key interest rate. A direct measure to reduce the money supply would be to increase the minimum reserves . The control of the money supply via the base rate is a decisive factor for the development of the price level .
Monetary policy control tool
Changes in the key interest rate also result in a change in the external value of the currency , because an increase in the key interest rate leads to an increase in the exchange rate of the currency concerned. This in turn has negative consequences for exports and makes imports cheaper , thus worsening the terms of trade . The key interest rate and the exchange rate are therefore reciprocal, since a hard currency allows a low key interest rate. As a result, the key interest rate also reflects expectations regarding the development of exchange rates and inflation. The Bank of England takes into account the “ balance of payment position ” and the expected inflation rate when determining the key interest rate.
Influence on economic growth and the unemployment rate
In 1993, the American economist John B. Taylor developed the Taylor rule, the basic guidelines for determining the interest rate. According to this, most central banks no longer determine the key interest rate solely on the basis of money supply growth and inflation, but also include benchmarks such as the unemployment rate and deviations from natural economic growth . This modified the classic LM model . The key interest rate policy of the central banks has therefore also taken on the function of influencing the unemployment rate and economic growth. Cheap money, for example, encourages investors and consumers to invest on credit, thereby promoting economic growth.
Orientation function
Changes in key interest rates are prominently featured in the news and are sensibly registered by the economy. A change in key interest rates signals to the economy that the central bank, with its monetary policy options, would like to steer the economy in a certain direction. Economic agents adjust their reaction behavior to changes in key interest rates. The stock exchange is usually the most sensitive , because lower key interest rates often lead to share price increases and vice versa. This is because you expect an improvement in business situations and / or due to falling bond yields , the bonds in favor of equities restructures.
In recent years, however, the key interest rate has become increasingly decoupled from the debit and credit interest rates actually levied by commercial banks. Although the key interest rate ( main refinancing rate ) was drastically reduced from October 2008, the lending rates had not behaved accordingly, while the credit interest rates were significantly reduced.
Web links
- ECB Frankfurt, key interest rates since the introduction of the euro (English)
- Fund rate of the US Federal Reserve since 1990 (English)
Individual evidence
- ↑ Martin Fischer: The causes of the real estate crisis and its effects on the financial market in Germany . BoD - Books on Demand, 2009, ISBN 978-3-941482-11-1 , pp. 5 ( limited preview in Google Book search).
- ↑ The Bundesbank's monetary policy , Deutsche Bundesbank, October 1995, p. 98 (PDF; 3.2 MB)
- ↑ a b Otmar Issing / Bernd Rudolph, Der Rediskontkredit , 1988, p. 41 f. (PDF; 6.8 MB)
- ↑ Werner Ehrlicher, Diethard B. Simmert: Changes in the monetary policy instruments of the Deutsche Bundesbank. 1988, p. 134 ( limited preview in Google Book search).
- ^ The Bundesbank's monetary policy , Deutsche Bundesbank, October 1995, p. 109.
- ↑ Bernd O. Weitz, Anja Eckstein: VWL basic knowledge. 2013, p. 116 ( limited preview in Google Book search)
- ↑ a b Lothar Wildmann: Macroeconomics, Money and Currency. 2007, p. 128 ( limited preview in Google Book search).
- ↑ Wolfgang Cezanne: General Economics. 2005, p. 416 ( limited preview in Google Book search).
- ^ A b c Oliver Brand: The international law of interest in England. 2002, p. 77 ( limited preview in Google Book search).
- ↑ Olivier Blanchard: Macroeconomics. 4th updated edition. Pearson studies, Munich a. a. 2006, ISBN 978-3-8273-7209-3 , pp. 725 ff.
- ↑ Stefan Schultz: Monetary Policy: This is how America's interest rate turnaround changes the world. In: Spiegel Online . December 17, 2015, accessed June 9, 2018 .
- ↑ Nadine Oberhuber: By the grace of bankers. Zeit Online, April 14, 2011. Retrieved August 13, 2018.
- ↑ See Statista: ECB interest rate for the main refinancing business since 1999