The Central Bank’s key interest rate (sometimes called the policy rate) is the interest rate in transactions with credit institutions that most determines the development of short-term interest rates in the market and thus the level of restraint in monetary policy. The bank's current key interest rate is the interest rate on seven-day term deposits of credit institutions at the Central Bank.
The Central Bank implements monetary policy primarily by influencing interest rates in the money market through the determination of interest rates on the facilities it offers to credit institutions, which then affects other market interest rates and thereby the money supply, demand and inflation.
It may vary from time to time which Central Bank interest rate has the greatest impact on other short-term interest rates and is thus considered its main interest rate. Before the financial crisis in the autumn of 2008, the bank's main interest rate was the interest rate on the Central Bank's collateralised loans to credit institutions, as there was considerable demand for them. After the financial crisis, however, credit institutions' demand for loans from the Central Bank has been limited, and credit institutions have deposited significantly more into accounts with the bank. As a result, interest rates on deposits with the Bank have had greater impact on money market interest rates since 2009.
The Monetary Policy Committee makes decisions on the application of the Central Bank's key interest rate and other monetary policy instruments, such as transactions with credit institutions other than last-resort loans, reserve requirements, and transactions in the foreign exchange market and with securities that aim to achieve price stability. The Monetary Policy Committee consists of the Governor, two Deputy Governors, and two external experts.