I'm currently revising for my AS economics exam and I am going over Monetary Policy. In a handout, I've read the following phrases which I am a little confused about...
"A cut in the base rate, assuming it reduces market interest rates across the economy..."
This quote implies that the Bank Rate only changes the Central Bank's Interest Rate not the IR for commercial banks; so therefore, how are IRs determined in commercial banks? Do they have to be within a certain range of the Bank Rate? (Otherwise what is the point of influencing the Bank Rate if commercial banks are not forced to comply?).
"An increase in the base rate will not only reduce post-debt repayment income..."
This implies that mortgages etc. vary depending on the IR rate rather than being a fixed amount independent of changes in the IR (which is what I thought it was).