Central Bank

A central bank manages a country's money. It issues currency, sets the policy interest rate, and is responsible for price stability and the soundness of the financial system.

Its main instrument is the policy rate. Raising it makes borrowing expensive, cooling consumption and investment and bringing prices down; cutting it does the reverse. That single number ripples through the whole economy.

Its other role is lender of last resort. When banks stop lending to each other, as in a financial crisis, the central bank supplies funds so the system does not seize up.

Independence from government matters. Politicians facing elections want lower rates, but that lets inflation escape control, so most countries protect central bank independence in law.

For investors, central bank meetings are among the most important dates on the calendar. Markets parse not just the rate decision but the remarks afterwards and individual phrases in the minutes.