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Define Or Explain the Following Concept.Bank Rate. - Economics

Define or explain the following concept.

Bank Rate.

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Solution

Bank Rate

(i) It is the rate at which central bank (RBI) lends money to commercial banks by discounting bills of exchange.

(ii) It acts as a guide line to the banks for fixing interest rates. If bank rate increases, interest rate wills goes up, and vice-versa.

(iii) The bank rate is decided by the Central Bank. In April 2010, the bank rate was maintained at 6% p.a

Concept: Central Bank Function - Controller of Credit
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