The interest rate

Expressed as a percentage (%), the interest rate represents the price of money over time.

There are two main interest rates in the economy: the interest rate of commercial banks (and other financial institutions) and the key interest rates¹ of the Central Bank (CB).

The interest rate charged by commercial banks is the return on (monetary) capital whose repayment is deferred to a later date. It is also considered the risk-taking counterpart of commercial banks or financial institutions in general. Its level depends on the BC's key interest rates and the assessment of risk in the environment.

Example : Assiba, which borrows 10,000 from bank X, will bear an interest rate i (%) on the repayment date.

The central bank's key interest rates are the main instruments for the conduct of monetary policy. Through its rate movements, the CB guides the overall path of economic activity in a country.

Example : an increase in the central bank refinancing interest rate may lead to an increase in the cost of financing for commercial banks, which would result in an increase in the interest rate on loans granted by them to finance the acquisition of real estate.

1.  A distinction is made between the rate of refinancing of commercial banks with the CBs and the rate of interest on the reserves held by commercial banks with the CBs.