If a central bank reduces the base rate, banks would also likely reduce their lending rates and rates for mortgages. This means that it might be easier to get a loan, and mortgage rates would become more favourable for buyers. However, lower base rates could also mean that you would get lower returns on your savings, as interest rate payments decline in value.
If a central bank increases the base rate, borrowing would become more expensive and mortgage rates would increase – which is more favourable for the banks and for sellers. However, any savings that are held in interest-based accounts would see greater returns on the interest payments in line with the increase in the base rate.
In the years after the 2008 financial crisis, for example, many central banks kept base rates low. This in turn led most commercial banks to charge low interest rates on loans to customers, but also offer low interest rates on money held in interest-based accounts.
With the cost of borrowing low and the benefit from saving minimal, consumers would, in theory, be encouraged to spend money instead of saving it. This in turn would boost businesses and the economy.
Central banks release regular statements detailing their policy on base rates. See when the next release is on our economic calendar.