Overnight rate

Okay kiddo, so you know how we use money to buy things we want, right?

Yes!

Well, the banks also borrow money from a special group called the “central banks,” and they have to pay interest on the money they borrow. The overnight rate is the interest rate the central bank charges the regular banks for borrowing money overnight.

What is “overnight”?

Overnight means for one night only. So, when the bank borrows this money from the central bank, they usually only need it for a little while, like one night. They use this money to make loans to people or businesses who need to borrow money from the bank.

So, what does it mean when the overnight rate goes up or down?

When the overnight rate goes up, it means that the central bank is charging more interest, and it makes it more expensive for the regular bank to borrow money. That means it’s harder for people to borrow money from the banks, and they might have to pay more interest on loans they get from the banks.

When the overnight rate goes down, it means that the central bank is charging less interest, and it makes it easier for the regular bank to borrow money. That means it might be easier for people to borrow money from their banks and pay less interest on their loans.

So, the overnight rate is important because it affects how much money people and businesses can borrow, and how much interest they have to pay.