Interest rate
The cost of borrowing money, set as a percentage.
Central banks set a benchmark rate that ripples through mortgages, loans, and savings. Higher rates slow spending and borrowing; lower rates encourage them.
The rate everyone watches is the one the central bank sets, the price at which banks lend to each other overnight. Every other rate in the economy, from mortgages to credit cards to the yield on government bonds, is priced off that anchor plus a spread for risk and time.
When the benchmark goes up, borrowing costs rise, spending and investment slow, and inflation usually cools. When it comes down, the reverse. Markets try to price the path of rates months ahead, so a lot of the move happens before the central bank actually acts. That is why a rate decision can pass with barely a flicker if it was already expected, and why the wording of the statement often matters more than the number.