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How Central Banks Use Standing Facilities to Control Short-Term Rates
Description
Episode 31 of Monetary Policy Explained with Fexingo drills into standing facilities—the lending and deposit windows that keep short-term interest rates within a central bank's target corridor. Lucas walks through how the ECB's marginal lending facility and deposit facility act as a ceiling and floor for overnight rates, using real examples from June 2026 when the ECB narrowed its corridor. Luna pushes back on whether standing facilities still matter in a world awash with reserves, and Lucas explains why the Fed's interest on reserve balances (IORB) has effectively replaced the old discount-window ceiling. The episode includes a concrete breakdown of how the Bank of England's standing facility works differently post–quantitative tightening, and why smaller central banks in emerging markets rely on them more heavily. Listeners come away understanding a core operational tool that makes rate targets stick.