How Central Banks Use Forward Rate Agreements

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Jul 13, 2026 · 7m · transcript

In this episode of Monetary Policy Explained, Lucas and Luna break down how central banks use forward rate agreements — specifically Overnight Indexed Swaps — to extract market-implied policy expectations. They look at the Bank of England's 2023-2024 experience as a case study, showing how the wedge between SONIA swap rates and actual Bank Rate revealed whether markets believed the central bank's tightening cycle. Lucas walks through a concrete example: in September 2023, OIS pricing implied a peak Bank Rate of 5.5%, while the MPC had only guided to 5.25% — a 25 basis point gap that…