What is 'Base rate'? | Freetrade Dictionary

What's the base rate?

The "base rate" typically refers to the interest rate that a central bank, like the Bank of England or the Federal Reserve in the United States, sets and uses as the primary tool for controlling monetary policy. This rate is crucial because it influences the cost of borrowing money throughout the economy.

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The rate set by a central bank can influence the cost of borrowing for others in an economy. This has the knock-on effect of either encouraging or slowing economic activity.

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Central banks use the base rate to try to control factors like inflation. Changes in the base rate can also influence the valuation of a country’s currency in relation to other currencies.

More terms

Net asset value

Mutual funds and investment trusts are priced on their net asset value (NAV).

Over-The-Counter (OTC)

A security that is sold outside of an exchange.

Accrued interest

The interest earned on a gilt since the last dividend date. When buying a gilt, the buyer pays the accrued interest at the time of a transaction to the seller in addition to the clean price of the gilt

Know Your Customer (KYC)

A legal requirement for financial firms to understand exactly who their customers are. Used to prevent money laundering and terrorist financing.

Time Value of Money

The concept that money you have now is more valuable than the same sum in the future.

Coupon

Also called a dividend, this is the fixed annual interest paid to gilt holders. It’s usually paid in two equal, semi-annual instalments and expressed as a percentage of the nominal value of the gilt.

Value stocks

Stocks in companies that aren’t necessarily growing fast, but instead are dependable and stable.

Stock Market

A place where shares of publicly listed companies are traded.

Earnings per share

We look at what earnings per share mean and how to calculate it

Base rate