Rate Hike

Definition

A central bank’s decision to raise its policy rate. Higher policy rates can make some loans more expensive over time.

Central banks may raise rates to cool spending when inflation is high. Higher borrowing costs can make new loans and investment projects more expensive. Savers may also earn more on some deposits, depending on how their bank adjusts its rates.

Example

A central bank raises its policy rate from 4.00% to 4.25%. That is a 25-basis-point rate hike.