The "base rate" typically refers to the interest rate that a central bank, like the Bank of England or the Federal Reserve in the United States, sets and uses as the primary tool for controlling monetary policy. This rate is crucial because it influences the cost of borrowing money throughout the economy.
The rate set by a central bank can influence the cost of borrowing for others in an economy. This has the knock-on effect of either encouraging or slowing economic activity.
Central banks use the base rate to try to control factors like inflation. Changes in the base rate can also influence the valuation of a country’s currency in relation to other currencies.
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