Interest rate cut - Financial definition
Concise definition of the term interest rate cut
An interest rate cut is a reduction in the benchmark interest rate set by a central bank, intended to lower borrowing costs and stimulate economic activity.
Comprehensive definition of the term interest rate cut
An interest rate cut typically occurs when a central bank, such as the Federal Reserve or the European Central Bank, lowers the target rate for short-term borrowing. This action is often part of a monetary policy strategy to combat economic slowdowns, reduce unemployment, or curb deflation. By decreasing the cost of borrowing, an interest rate cut can encourage businesses and consumers to take out loans and increase spending, thereby boosting economic growth.
Practical examples include the rate cuts implemented by central banks during financial crises, such as the 2008 global financial crisis, to support the economy and stabilize financial markets. Market participants closely monitor these cuts as they influence a wide range of financial products, including mortgages, bonds, and savings accounts.