Bank Rate

Bank Rate

The Bank rate or rediscount rate is the rate at which the central bank rediscounts papers presented by commercial banks or makes advances to them directly against approved securities. It is the rate charged by the central bank for lending funds to commercial banks.

The bank rate policy of the central bank, therefore, implies the varying of the rate on the central bank’s accommodation and the term on which it is willing to rediscount bills and make an advance.  It is known by a number of dissimilar terms depending on the country and has changed over time in some countries as the mechanisms used to control the rate have changed. Higher bank rate will translate to higher lending rates by the banks.

“The bank rate or rediscount rate at which the central bank makes available financial accommodation to commercial banks by discount govt. or other first-class approved securities offered by the commercial banks.” – M.C.Vaish.

“Bank rate is the rate of which the central bank is prepared to rediscount first-class bills or to advance loans an4 approved securities.” – M.N.Mishra