Education·20 April 2026·4 min read
The policy interest rate — the economy's thermostat
With a single interest rate, a central bank can heat or cool an entire economy. How it works.
The central bank sets a reference interest rate. When it raises it, loans get more expensive, people spend less and inflation cools. When it lowers it, the opposite happens.
A delicate balance
It's an art: too high, you choke the economy; too low, you ignite inflation. That's why central bank decisions are watched by everyone — they affect installments, savings and jobs.
