The benchmark interest rate set by a central bank, such as the Bank of England's Bank Rate or the Federal Reserve's federal funds rate, that serves as the foundation for borrowing costs throughout an economy. Commercial banks use the base rate as a reference point when setting their own lending and deposit rates for consumers and businesses. Changes in the base rate ripple through mortgage rates, corporate loan pricing, bond yields, and currency valuations, making central bank rate decisions among the most closely watched events in financial markets.
Example
“After the central bank raised the base rate by 50 basis points, mortgage lenders increased their standard variable rates, pushing up monthly payments for homeowners on tracker deals.”