Assuming these well-functioning financial markets, the central bank sets the policy rate at a level consistent with its stated goal of price stability (and possibly other goals which vary with countries). The bank manages its liquidity provision to ensure that short-term market interest rates are in line with the policy rate.
Transitioning to Alternative Rates A handful of firms have said that they may want more time to evaluate potential alternative rates. There is no more time, and banks will not find LIBOR available to use after year-end no matter how unhappy they may be with their options to replace it.