User:Nick Gardner /Sandbox

The mechanism to move the market towards a 'target rate' (whichever specific rate is used) is generally to lend money or borrow money in theoretically unlimited quantities, until the targeted market rate is sufficiently close to the target. Central banks may do so by lending money to and borrowing money from (taking deposits from) a limited number of qualified banks, or by purchasing and selling bonds.

A typical central bank has several interest rates or monetary policy tools it can set to influence markets.

• Marginal lending rate (currently 1.75% in the Eurozone) – a fixed rate for institutions to borrow money from the central bank. (In the USA this is called the discount rate).
• Main refinancing rate (1.00% in the Eurozone) – the publicly visible interest rate the central bank announces. It is also known as minimum bid rate and serves as a bidding floor for refinancing loans. (In the USA this is called the federal funds rate).
• Deposit rate (0.25% in the Eurozone) – the rate parties receive for deposits at the central bank.

These rates directly affect the rates in the money market, the market for short term loans.

[edit] Open market operations