Central bank rate
A central bank rate is the key interest rate a central bank uses to set the cost of money in an economy. Loans, savings and the exchange rate all depend on it.
How it works
A central bank changes the rate to manage inflation. A higher rate makes loans pricier, people and companies spend less and price growth slows. A lower rate makes money cheaper and boosts the economy. Decisions come at meetings on a published schedule: the US Federal Reserve and the ECB, for example, meet eight times a year.
For a trader the difference in rates between two currencies matters. When a rate rises, holding that currency earns more, and it often strengthens. The same gap sets the swap, the fee or credit for holding a position overnight.
The market prices in the expected decision ahead of time. So a big move often comes not from the number itself but from a surprise: the rate changed differently than expected, or the bank hinted at a different path ahead.
A central bank signals that it will cut the rate. At the meeting, pairs with that currency can spike and the spread widens.
The market expected a 0.25% hike and the bank hiked exactly 0.25%. But its statement said this was the last hike. The currency did not rise; it fell 80 pips because traders had expected a tougher tone.
The main mistake is opening a position a minute before the decision, trying to guess it. In those minutes the spread widens and price can whip both ways and hit your stop with slippage. Check the decision time in an economic calendar beforehand, look at market expectations and the tone of the statement, and if you trade, cut your size or wait for price to settle.
Questions and answers
What is a central bank rate in simple terms?
It is the "price of money" set by the central bank. When it is high, loans are expensive and savings pay more; when it is low, the opposite.
How does an interest rate decision affect a currency?
A hike, or a hint of one, usually strengthens the currency and a cut weakens it. What matters most is how the decision compares with market expectations.
When do central banks announce rate decisions?
At scheduled meetings on a published calendar. Dates and times are listed in an economic calendar.
Related terms
Read next
Four ideas you need to read any forex quote.
Read →How to choose a forex broker: a beginner's checklistA broker holds your money and executes your trades, so choose one for safety, not for bonuses. Here is what to check, in order.
Read →Cross rateA cross rate is the exchange rate between two currencies without the US dollar, such as EUR/GBP or EUR/JPY. You can…
Partner links are marked. If you sign up through them, we may earn a commission at no cost to you. Details
Updated: 2026-10-19