A central bank typically sets a country’s official short-term interest rate as part of monetary policy.
Central banks influence borrowing costs and financial conditions by setting or targeting a policy interest rate. Changes in that rate can affect household borrowing, business investment, exchange rates, and spending. Central banks may also use open-market operations, reserve tools, or large-scale asset purchases, depending on their legal framework and economic circumstances.
Examples include the Federal Reserve in the United States, the European Central Bank for the euro area, and the Bank of England in the United Kingdom. Their mandates differ, but price stability is a central objective for many.
A central bank is not the same as a commercial bank. Commercial banks take deposits and make loans to customers. A central bank serves as a monetary authority and may act as lender of last resort. Its decisions influence the economy but do not mechanically control every market interest rate.