BIS central bankers’ speeches  1  The first equation on my next slide [3] describes how long-term interest rates and the overnight rate are connected. Long-term rates ( iLt) reflect the average expected overnight rate set by monetary policy (which is indicated by itMP) plus a premium to reward long-term investment and lenders’ exposure to uncertainty ( prt).
To influence long-term interest rates the central bank has two levers. These levers correspond to the two terms on the right-hand side of equation (1). The first term in parentheses denotes the component of the long-term interest rates that is determined by the expectations of the policy rate.