Central banks around the world: Fed, ECB, BOJ, BoE and more

A central bank manages a country's money: it sets the short-term interest rate, supplies reserves to banks, acts as lender of last resort in a panic and, in many countries, manages the exchange rate or the foreign-currency reserves. The Federal Reserve is the one US investors know best, but markets trade on the decisions of half a dozen others, and the gaps between their rates are among the strongest forces in currency markets.

The big central banks share a toolkit but not a rulebook. They name their policy rates differently, set them in different ways and answer to different mandates: the Fed to jobs and prices, the European Central Bank to price stability alone, the People's Bank of China to a broader mix. Knowing which rate each one steers, and what it is trying to achieve, makes their statements much easier to read.

This guide profiles the six central banks most watched by markets, gives their policy rates as published on their own sites as of late October 2026, and uses the long history of the yen against the dollar to show how differences in policy move exchange rates.

What a central bank controls

A central bank cannot set every interest rate in the economy. It sets the price of overnight money between banks, by paying interest on the reserves banks hold with it, lending to them against collateral and buying or selling securities. Changes in that overnight rate then pass into Treasury bill yields, deposit and loan rates, bond yields and, through investors' search for return, into stock valuations and the currency.

Beyond the policy rate, the main tools are:

• Balance-sheet policy. Buying government bonds and other assets (quantitative easing) to push down longer-term yields, or letting them run off (quantitative tightening). See Quantitative easing and tightening: the Fed’s balance sheet.
• Forward guidance. Statements about the likely path of rates, which move markets before any rate changes.
• Liquidity facilities and swap lines. Lending to banks in stress, and lending dollars to other central banks so they can supply their own banks.
• Currency operations. Buying or selling the home currency in the market, which some central banks do routinely and others only rarely.

The six central banks markets watch

Federal Reserve (United States)

The Fed's Federal Open Market Committee sets a target range for the federal funds rate, 25 basis points wide. Congress gave it two goals, maximum employment and stable prices, and the FOMC defines stable prices as 2% inflation over the longer run, measured by the personal consumption expenditures (PCE) price index. The range was cut three times in late 2025, to 3.50–3.75%, and raised by 25 basis points in September 2026 to 3.75–4.00%. The guides to the Federal Reserve and the federal funds rate go further.

European Central Bank (euro area)

The ECB has three key rates: the deposit facility rate, the main refinancing rate and the marginal lending rate. Since March 2024 the Governing Council has said it steers its policy stance through the deposit facility rate. As of the change effective September 16, 2026, the deposit rate was 2.50%, up from 2.25%. The ECB targets 2% inflation over the medium term, measured by the Harmonised Index of Consumer Prices (HICP), and treats misses in either direction as equally undesirable.

Bank of Japan

The BOJ's price stability target, set in January 2013, is 2% annual CPI inflation. Its policy decision is a guideline for money market operations: on September 18, 2026, the Policy Board voted 7–2 to encourage the uncollateralized overnight call rate to remain at around 1.25%, effective September 24, 2026. For years the BOJ held rates at or below zero, so its moves are watched closely in currency markets.

Bank of England

The Bank of England's nine-member Monetary Policy Committee sets Bank Rate eight times a year, with the Governor holding the casting vote in a tie. The 2% inflation target is set for it by the UK government. The Bank's site showed Bank Rate held at 3.75% at the September 2026 decision.

Bank of Canada

The Bank of Canada sets a target for the overnight rate. It raised the target by 25 basis points to 2.50% on October 28, 2026. Its inflation target, agreed jointly with the federal government and renewed every five years, is the 2% midpoint of a 1–3% range for total CPI inflation; the current agreement runs to the end of 2026, and the bank describes its renewal as under way.

People's Bank of China

The PBOC works with several rates rather than a single headline one. It conducts open-market operations, including seven-day reverse repurchase agreements, and a benchmark loan prime rate (LPR) is published monthly by the National Interbank Funding Center under its authorization. The announcement of October 20, 2025 set the one-year LPR at 3.0% and the over-five-year LPR at 3.5%. China also manages the yuan's exchange rate against a daily reference rate, which gives the PBOC a currency role the others do not have in the same form.

How rate gaps move currencies

Investors can hold cash in any major currency. If dollar deposits pay 4% and yen deposits pay 1%, dollars are more attractive, unless the yen is expected to rise enough to make up the difference. That pull is why the expected path of each central bank's rate, not just today's level, is one of the main drivers of exchange rates (see The US dollar and exchange rates: indexes, drivers and earnings).

The yen's history shows policy at work over five decades:

• 1971 to 1987: the end of fixed rates. The series starts at ¥358 in January 1971, near the old fixed rate of ¥360. After the 1985 Plaza Accord, in which the major economies agreed to push the dollar down, the rate fell from ¥236.5 in September 1985 to ¥128.2 by December 1987.
• 2011: the strong-yen extreme. The dollar bought just ¥76.6 in October 2011.
• 2013 onward: Japanese easing. After the BOJ adopted its 2% target and large-scale asset purchases in 2013, the rate went from ¥94.8 in March 2013 to ¥123.7 by June 2015.
• 2021 to 2026: the widest gap. As the Fed raised rates from 2022 while the BOJ kept its rate at or below zero until 2024, the dollar rose from ¥103.8 (January 2021) to ¥162.3 (July 2026), +56%. The July 2026 monthly average was the weakest for the yen since November 1986. By September 2026 it had eased to ¥156.4.

The carry trade, worked through

A carry trade borrows in a low-rate currency and invests in a higher-rate one, aiming to earn the difference. It works until the funding currency rises.

Pitfalls when following central banks

• Policy rates are not market rates. Mortgage, corporate and long-term government yields can move the other way from the policy rate. See How interest rates affect stocks: discount rates and equity duration.
• Effective dates. Decisions are announced on one day and often take effect a day or a week later. The BOJ's September 18, 2026 decision took effect on September 24.
• Different inflation measures. The Fed targets PCE inflation, the ECB HICP, the Bank of Canada total CPI; a "2% target" does not mean the same index.
• Currency moves have many causes. Rate gaps explain a lot, but growth, risk appetite and intervention matter too, and the data alone cannot say which dominated a given move.
• Levels change. The rates in this guide are as published on each bank's site in late October 2026. Check the bank's own page before relying on them.

Central banks compared

How Finabase does it

Finabase does not publish central-bank decisions, rate histories or a meeting calendar; the yen chart and the central-bank table on this page are ours, built from Federal Reserve data and each bank's own publications. What the app shows is how markets price these decisions. The /forex page lists 51 currency pairs, including the majors and a yen-crosses group, with returns from one week to two years; USD/JPY has its own chart page. The /futures page includes government bond futures for the US, Germany, Japan and the UK, and the Fed topic on Discover collects web articles about central-bank news.

Frequently asked questions

What is the ECB's main interest rate?

The deposit facility rate, the rate banks earn on overnight deposits with the ECB. The ECB has said since March 2024 that it steers its policy stance through this rate. It was 2.50% after the change effective September 16, 2026.

Why does the yen move so much against the dollar?

Largely because Japanese interest rates have been far below US rates for long periods, which makes the yen cheap to borrow and the dollar attractive to hold. When that gap widens the yen tends to weaken, and when it narrows or investors unwind carry trades the yen can rise quickly.

Do all central banks target 2% inflation?

Most of the large ones do: the Fed, ECB, Bank of Japan, Bank of England and Bank of Canada all aim at 2%, though they measure it with different price indexes. The People's Bank of China's mandate is framed around currency stability and growth.

Which central bank matters most for US stocks?

The Federal Reserve, because it sets the US short-term rate that anchors Treasury yields and the dollar. But a surprise from the ECB or the Bank of Japan can move the dollar, bond yields and global stocks too.

Summary

Central banks steer the overnight cost of money in their currencies, each through its own named rate: the Fed's target range, the ECB's deposit facility rate, the BOJ's overnight call rate, the Bank of England's Bank Rate and the Bank of Canada's overnight target, with the PBOC working through open-market rates and the LPR. Most aim at 2% inflation, measured differently; the Fed also answers for employment. The gaps between their rates move currencies, as the yen's slide from ¥103.8 to ¥162.3 per dollar between 2021 and 2026 shows, and carry trades built on those gaps can reverse quickly. The levels in this guide are a dated snapshot, so check each bank's own site for the current rate.