Question

Explain Bank Rate Policy as a tool of Credit Control.

Answer 1

1. The Bank Rate Policy is a credit control mechanism that allows the central bank to change the interest rate it lends to commercial banks.
2. By raising the interest rate, the central bank makes borrowing more expensive.
3. By raising the bank rate, the central bank increases the cost of borrowing, lowering the money supply and managing inflation. Lowering the bank rate, on the other hand, reduces the cost of borrowing, boosting the money supply and stimulating economic activity.
4. This policy helps to regulate overall credit availability in the economy.