At what rate do most central banks, including the Fed and the ECB, provide discount loans?

Most central banks, including the Federal Reserve and the European Central Bank, typically provide discount loans at a rate that is above the target interest rate. This approach is used to discourage banks from relying heavily on borrowing from the central bank. By setting the discount rate higher than the target rate, central banks create a disincentive for financial institutions to seek loans directly from them unless necessary.

This mechanism reinforces the desired monetary policy stance. If banks find it costly to borrow from the central bank, they are more likely to borrow from other banks in the interbank market, which can help ensure that short-term interest rates remain within the target range set by the central bank. Thus, the structure of the discount rate is a tool used by central banks to maintain control over the broader interest rate environment and to guide economic activity.