US rates after the Fed's cut
Policy rate and repo rate spread
The policy rate is an interest rate set by a country's central bank to influence monetary variables in the economy, such as inflation, exchange rates, and credit expansion. It serves as a key tool for implementing monetary policy.
The repo rate is the interest rate at which a central bank, lends money to commercial banks in exchange for securities.
Historically, the repo rate is usually slightly below the federal funds rate because repo transactions are secured while federal funds transactions are usually unsecured. However, this relationship can vary depending on market conditions and Fed policy actions. Market conditions and Fed policy actions can sometimes cause deviations from this typical relationship.
A high spread between the repo rate and the policy rate (typically the federal funds rate in the US) indicates:
Increased risk perception: A larger spread suggests that banks perceive higher risks in lending to each other compared to borrowing from the central bank.
Market stress: A wid…