The second significance of central bank rates is that there is an excellent correlation between loan interest rates and central bank rates. For example, in case the Fed reduces the benchmark rate, financial institutions usually emulate that by lowering their rates on mortgages, personal loans, and business loans. This trickle down means that people and corporations borrow and stimulate economic growth when the borrowing costs are low.Effect on Loans
1. Mortgages: Lower interest rates translate into lower mortgage rates, which would reduce the price of buying a home. For people considering ownership, even the smallest drop-in rates can save thousands over the course of a loan.