Policy Rate (Leitzins)

Concept and significance

The policy rate (Leitzins) is a central bank's main steering rate, used to influence refinancing conditions for commercial banks — and indirectly the entire interest-rate level of an economy. In the euro area, this function falls to the European Central Bank (ECB); in Switzerland to the Swiss National Bank (SNB); in the United States to the Federal Reserve (Fed).

Contrary to common simplification, there is no single policy rate but rather a three-rate corridor system through which the ECB steers the euro money market.

The ECB corridor model

Since the reform of 18 September 2024 the ECB operates a simplified corridor with a narrower spread:

• Deposit facility rate (DFR) — the rate at which banks can park excess reserves overnight at the ECB. Since 5 June 2026: 1.75%.
• Main refinancing rate (MRO) — the rate for weekly refinancing operations. Currently: 2.00%.
• Marginal lending facility (MLF) — the rate for overnight loans to banks. Currently: 2.25%.

The spread between the deposit rate and the MRO has been narrowed from 50 to 25 basis points. In practice the deposit rate has been the operative policy rate since 2008, because bank liquidity is structurally abundant and the ECB has created far more reserves through its asset purchases than the system needs.

Transmission mechanism

A rate decision feeds through to the real economy via several channels:

1. Money market — €STR (Euro Short-Term Rate) and Euribor track the deposit rate almost one-for-one.
2. Credit market — bank lending rates for corporates and households (mortgages) follow with a 1-3 month lag.
3. Securities prices — bond prices react immediately; equities through the discounting of future cash flows.
4. Exchange rate — higher rates tend to appreciate the euro, lower rates to depreciate it.

The impact on inflation comes through with the familiar 12-18 month lag — which the ECB regularly defends against short-term market-expectations pressure with its "we are not pre-committing" line.

Context in 2026

After the rapid hiking cycle of 2022-2023 (deposit rate from -0.5% to +4.0%) and the pivot of 2024 (first cut in June), the ECB is in the final phase of its easing cycle as of June 2026. Euro-area inflation stands at around 2.1% — just above the 2% target. Markets price one further 25-basis-point cut by year-end.

The Swiss SNB has held its policy rate at 0.5% since mid-2024; the Fed at 3.75-4.00%. The transatlantic spread of roughly 200 basis points structurally supports the US dollar against the euro.