An interest rate decision is the determination by a central bank of the level of the policy rate, which is the interest rate at which commercial banks can borrow money from or deposit funds with the central bank in the short term. Interest rate decisions by major central banks—especially the U.S. Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan—are among the most influential events in financial markets.
They affect exchange rates, bond yields, equity markets, credit conditions, and overall risk sentiment. An interest rate hike tends to strengthen the respective currency, as higher interest rates attract capital inflows. A rate cut generally has the opposite effect. Traders and investors closely monitor both the decision itself and the central bank’s communication, as even subtle changes in wording can trigger significant market movements.
