Overnight Rate Definition
Overnight Rate refers to the interest rate at which banks lend funds to another bank overnight. This funds are depositories of commercial banks in the central bank. In the U.S., this is referred to as the Federal Funds Rate. The overnight rate is influenced by the central bank, but the actual interest rate is set by market forces. Generally it often points to the direction of short-term interest rates. It is the most sensitive indicator of the direction of interest rates as it is set daily.