How effective have these various steps been in reducing the cost of borrowing for households and businesses while maintaining price stability? Central banks have lots of experience guiding the economy by adjusting short-term policy rates and influencing expectations about future policy rates, and the underlying theory and practice behind those actions are well understood.
The reduction of the policy interest rate to close to zero led to a sharp decline in the cost of funds in money markets – especially when combined with the creation of emergency liquidity facilities and the establishment of liquidity swaps with foreign central banks that greatly narrowed spreads in short-term funding markets.