Lingo topic · 102 terms
Central banks and interest rates
The Fed, the ECB and friends, and the rates they set.
A
- Alan GreenspanAn American economist who chaired the US Federal Reserve from 1987 to 2006, one of the longest runs in the job.
- Ample Reserves RegimeThe Fed's way of steering rates by keeping banks flush with reserves and moving the rate it pays on them, rather than rationing reserves.
- Asset PurchasesWhen a central bank creates money to buy bonds and other assets in bulk, pushing long-term interest rates down.
B
- Bank for International SettlementsAn international organisation in Basel, Switzerland, that serves as a bank and meeting place for the world's central banks.
- Bank of CanadaCanada's central bank, which sets the country's key interest rate and steers the Canadian dollar's monetary backdrop.
- Bank of EnglandThe UK's central bank, whose Monetary Policy Committee sets Bank Rate and steers the British pound's monetary backdrop.
- Bank of JapanJapan's central bank, famous for decades of ultra-low interest rates and massive bond buying.
- Base RateThe main interest rate a central bank sets, which ripples out to every loan and savings rate in the economy.
- Basis PointOne hundredth of one percent (0.01%). Used to describe small changes in interest rates and yields.
- Beige BookA Fed report, published eight times a year, that collects stories from businesses across the twelve Federal Reserve districts.
- Ben BernankeChair of the US Federal Reserve from 2006 to 2014, who led its response to the 2008 financial crisis.
C
- Carry TradeBorrowing in a low-interest currency to hold a high-interest one, aiming to earn the interest difference.
- Central bankThe institution that manages a country's money supply and sets its key interest rate, such as the Federal Reserve or European Central Bank.
- Central Bank Digital CurrencyA digital form of a country's money issued directly by its central bank, as opposed to private cryptocurrencies.
- Central Bank InterventionWhen a central bank buys or sells its own currency in the market to push its exchange rate in a chosen direction.
- Christine LagardeFrench lawyer and politician who became President of the European Central Bank in 2019, after leading the IMF.
- Currency DevaluationA deliberate official cut in the value of a currency that is pegged or managed.
- Currency ManipulationAccusation that a government is deliberately pushing its currency's value, usually down, to gain a trade advantage.
- Currency PegA policy of fixing a currency's value to another currency, a basket or gold, defended by the central bank.
- Currency Swap LineAn agreement between two central banks to swap currencies, so each can lend the other's currency to its own banks in a pinch.
D
- Deutsche BundesbankGermany's central bank, once the guardian of the Deutsche Mark and now part of the euro system.
- Dirty FloatAn exchange rate that mostly floats, but with the central bank stepping in now and then to steer it.
- Discount RateThe interest rate the Federal Reserve charges banks that borrow directly from it through the discount window.
- Discount WindowThe Fed's lending facility where banks can borrow short-term cash against collateral when they need liquidity.
- DoveA central banker who favours low interest rates to support growth and jobs, even at the risk of higher inflation.
E
F
- Fed Dot PlotA chart, published four times a year, showing where each Fed policymaker expects interest rates to be in coming years.
- Fed Funds FuturesFutures contracts based on the average federal funds rate in a month, used to read what markets expect the Fed to do.
- Fed PutThe belief that the Federal Reserve will step in with easier policy if markets fall hard enough, acting like insurance for investors.
- Federal Funds RateThe overnight rate at which US banks lend reserves to each other, and the main interest rate the Fed targets.
- Federal Open Market CommitteeThe Federal Reserve committee that sets US interest rate policy, meeting eight times a year.
- Federal ReserveThe central bank of the United States, which sets US interest rates and oversees much of its banking system.
- FIMA Repo FacilityA Federal Reserve facility that lets foreign central banks borrow dollars overnight using their US Treasury holdings as collateral.
- Financial Stability BoardAn international body set up in 2009 to monitor the global financial system and recommend rules to prevent crises.
- Fiscal DominanceWhen a government's debt is so large that the central bank feels pressured to keep rates low to keep it affordable, even if inflation is high.
- Fisher EffectIrving Fisher's idea that nominal interest rates move with expected inflation, keeping the real interest rate roughly steady.
- Fixed Exchange RateAn exchange rate system where a government holds its currency at a set value against another currency, a basket or gold.
- Forward GuidanceWhen a central bank tells markets what it is likely to do with interest rates in the future.
G
H
I
- Immaculate DisinflationInflation falling back without a recession or big jump in unemployment, a best-case outcome central banks hope for.
- Interest on Reserve BalancesThe interest rate the Federal Reserve pays banks on money they keep in their reserve accounts at the Fed.
- Interest rateThe cost of borrowing money, or the reward for lending it, shown as a yearly percentage. Central bank rates move currencies.
- Interest Rate DifferentialThe gap between the interest rates of two currencies, a major driver of exchange rates and of swap costs.
- International Monetary and Financial CommitteeThe committee of finance ministers and central bankers that advises the IMF and sets its broad direction, meeting twice a year.
J
L
M
- M2A measure of how much money is sloshing around an economy: cash, checking and savings accounts, and other near-cash.
- Mario DraghiThe Italian economist who ran the European Central Bank from 2011 to 2019 and promised to do "whatever it takes" to save the euro.
- Ministry of FinanceA government's treasury department; in forex, the name usually means Japan's MOF, which decides when to defend the yen.
- Monetary EasingWhen a central bank makes money cheaper and easier to get, by cutting rates or buying assets, to boost the economy.
- Monetary PolicyEverything a central bank does to control the cost and amount of money in an economy.
- Monetary Policy CommitteeThe Bank of England's nine-member panel that votes on UK interest rates.
- Monetary TighteningWhen a central bank makes money more expensive and scarcer, by raising rates or shrinking its balance sheet, to fight inflation.
- Money SupplyThe total amount of money circulating in an economy, measured in layers like M0, M1 and M2.
N
- Negative Interest Rate PolicyA central bank setting its key rate below zero, so banks pay to park cash with it.
- Neutral Interest RateThe interest rate that neither speeds up nor slows down the economy; a central bank's invisible target.
- Norges BankNorway's central bank, which sets rates for the krone and runs the country's giant oil fund.
O
- Old LadyA nickname for the Bank of England, which sits on Threadneedle Street in London.
- Open Market OperationsA central bank buying or selling government bonds in the market to steer short-term interest rates and liquidity.
- Operation TwistA Fed tactic of selling short-term bonds and buying long-term ones to push long-term interest rates down.
- Overnight Reverse Repurchase Agreement FacilityA Fed facility where money market funds and others can park cash overnight and earn interest, setting a floor under short-term rates.
P
- Pandemic Emergency Purchase ProgrammeThe European Central Bank's emergency bond-buying scheme launched in March 2020 to calm markets during COVID.
- People's Bank of ChinaChina's central bank, which sets monetary policy and keeps a firm grip on the yuan's exchange rate.
- Positive Interest Rate PolicyThe normal state of affairs where a central bank's key rate is above zero; used to contrast with zero or negative rate policies.
Q
- Quantitative EasingA central bank creating new money to buy bonds and other assets in bulk, to push down long-term rates and support the economy.
- Quantitative TighteningA central bank shrinking its balance sheet by selling bonds or letting them mature without replacing them, draining money from the system.
R
- Real interest rateThe interest rate after inflation is subtracted: what your money actually gains in buying power.
- Reserve Bank of AustraliaAustralia's central bank, which sets interest rates for the Aussie dollar.
- Reserve Bank of New ZealandNew Zealand's central bank, the first in the world to adopt an inflation target.
- Reserve Demand ElasticityHow sensitive short-term interest rates are to changes in the amount of reserves banks hold, a gauge of whether reserves are getting scarce.
- Reserve RequirementsThe share of customer deposits a central bank requires banks to keep on hand rather than lend out.
- ReservesMoney set aside: bank cash held at the central bank, or a country's stockpile of foreign currencies and gold.
- RevaluationAn official decision to raise the value of a fixed or pegged currency against others.
- Reverse RepoThe lender's side of a repo: you hand over cash, take bonds as collateral, and sell them back later at a slightly higher price.
S
- Scarce Reserves RegimeA setup where banks hold only just enough reserves, so small changes in supply push short-term rates around.
- Secured Overnight Financing RateThe main US benchmark for overnight borrowing costs, based on real repo trades backed by Treasuries. It replaced LIBOR.
- Senior Loan Officer Opinion SurveyA Fed survey of bank lending officers about whether they are making loans easier or harder to get.
- Small-Scale Asset PurchasesCentral bank bond buying on a modest scale, aimed at keeping markets working smoothly rather than at boosting the economy.
- Soft LandingWhen a central bank cools inflation with rate hikes without tipping the economy into recession.
- Soft PegA loose currency peg where the rate is kept near a target or within a band but allowed to move or be adjusted.
- Special Drawing RightsAn international reserve asset created by the IMF, valued against a basket of five major currencies.
- Standing Repurchase Agreement FacilityA permanent Fed backstop where eligible firms can borrow cash overnight against Treasuries, to stop repo rates from spiking.
- Summary of Economic ProjectionsThe Fed's quarterly release of policymakers' forecasts for growth, unemployment, inflation and interest rates, including the dot plot.
- Sveriges RiksbankSweden's central bank and the oldest central bank in the world, founded in 1668.
- SwapThe interest paid or charged for holding a forex position open overnight, based on the interest-rate gap between the two currencies.
- Swiss National BankSwitzerland's central bank, famous for its battles to stop the franc getting too strong.
T
- Taper TantrumThe 2013 market panic, with bond yields spiking, after the Fed hinted it would slow its bond-buying programme.
- TealbookThe Fed staff's confidential briefing book of forecasts and policy options prepared for each FOMC meeting.
- Term Auction FacilityAn emergency Fed programme from 2007 to 2010 that auctioned short-term loans to banks during the financial crisis.
- Terminal RateThe level where a central bank's interest rate is expected to top out (or bottom out) in a cycle.
- Treasury General AccountThe US government's main bank account, held at the Federal Reserve.
U
- U-StarThe unemployment rate an economy can sustain without pushing inflation up or down; written u*.
- U.S. Prime RateThe interest rate US banks charge their most creditworthy customers, which moves in step with the Fed's policy rate.
- Unsterilized Foreign Exchange InterventionA central bank buying or selling currency without offsetting the effect on the domestic money supply.
Y
- Yi GangChinese economist who served as governor of the People's Bank of China from 2018 to 2023.
- Yield CurveA line showing the interest rates on government bonds from short-term to long-term maturities.
- Yield Curve ControlA policy where a central bank caps a specific bond yield by promising to buy as many bonds as needed to hold it there.
Z
Private Lounge
Learn the whole topic
Your Private Swap Lounge tracks which of these you know and quizzes you on the rest. Portal under construction. Expected delivery date is December 01, 2026.