The market for reserves
The overnight policy rate is set where reserve demandmeets the central bank’s vertical reserve supply. Demand is fenced above by the discount rate and floored just below the IORB rate. Slide supply left to move from the ample floor system into the scarce corridor.
Market policy rate (EFFR)2.95%
Regime: Ample / floor system
Corridor band 3.00% – 4.00%Soft floor (IORB − a few bp) 2.95%
Reserve supply (quantity)84
IORB rate (floor)3.00%
Discount rate (ceiling)4.00%
Try this
Reserves are ample, so supply lands on the flat floor and the rate is pinned at 2.95%, just below IORB. Adding or draining reserves barely moves it. The bank steers the rate by moving the administered rates, not the quantity. In practice the EFFR trades a few basis points below IORB, because some lenders do not earn IORB.