The Governing Council of the European Central Bank [ECB] sets the key interest rates for countries within the Eurozone area.
In fact, there are three key interest rates for the Eurozone:
The main refinancing operations rate provides the bulk of liquidity to the Eurozone banking system. This is the base rate that sets the rates at which banks lend to each other and on which tracker mortgages and other loans are based. The rate is at its lowest ever level of 1% since December 2011, having fallen from a high of 4.25% in October 2008.
The deposit facility is available for banks to use to make overnight deposits with the Eurosystem. This rate is currently at 0.25%. Due to the current debt crisis, banks are fearful of lending to each other, so the ECB stepped in and provided €1 trillion to the Eurozone banking system under the Long Term Refinancing Operations [LTRO]. The LTRO allowed banks to borrow for up to three years. It was anticipated that banks would then recommence lending to business. Instead, almost half of that cash [€500 billion] was re-deposited by banks with the ECB. Because banks are so fearful of lending they are quite prepared to borrow from the ECB at 1% and immediately re-deposit the cash with the ECB and earn rate of 0.25%. This has frustrated the ECB plan to make cash available to business in order to stimulate economic growth. Now the ECB is contemplating reducing the deposit rate to zero. They hope this move will force more banks to increase lending which will spur growth and ultimately create jobs.
The marginal lending facility offers overnight credit to banks from the Eurosystem. This rate is currently set at 1.75%. Counterparties can use the marginal lending facility to obtain overnight liquidity from their National Central Banks against eligible assets. The interest rate on the marginal lending facility normally provides a ceiling for the overnight market interest rate.