The Cost of Money How Central Banks Set Interest Rates

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Jul 1, 2026 · 8m · transcript

Episode 84 of Monetary Policy Explained with Fexingo. Lucas and Luna break down how central banks actually set their key policy rate. We walk through the real mechanics: the standing facilities corridor, the role of the overnight index swap market, and why the effective federal funds rate sometimes drifts away from the target. Using the ECB's deposit facility rate and the Fed's interest on reserve balances as concrete examples, we explain how modern implementation works through a 'floor system' rather than the old scarcity model. We also touch on why the Bank of…