Base rate
Generally, a widely recognised and quoted interest rate - such as the Fed funds rate, the prime rate, or LIBOR - by reference to which a rate of interest is calculated. More properly, a "reference rate" or a "benchmark rate" and these avoid confusion with Base Rate (see below).
For example, in the phrase ‘LIBOR plus 50 basis points’, LIBOR is the base (reference) rate.
More particularly, a central bank rate may be known as Base Rate. This is normally the rate at which the central bank will lend overnight funds, commonly of a secured basis, to financial institutions. By changing this Base Rate, they may hope to influence market rates generally. It seems that anticipated changes to Base Rate are one of the largest influences on market rate movements between actual Base Rate changes[1].
Base Rates, if secured, are like the discount rate applied to loans to eligible institutions from the US Federal Reserve Banks under the primary credit program of their "discount window".
See also
References
- ↑ Paul Mizen and Boris Hofmann "Working Paper No 170: Base rate pass-through: evidence from banks' and building societies' retail rates", London, 2002, ISSN 1368-5562.
