What is meant by Bank Rate? How does it help in controlling the flow o

1.	What is meant by Bank Rate? How does it help in controlling the flow of credit in the economy?
Answer» Bank Rate is the rate at which central bank rediscounts the first class bills of exchange of commercial banks. Simply speaking it is the rate of interest at which central bank lends money to the commercial banks. It is used as an instrument of the credit control policy of the central bank. With the increase in bank rate, the market rates and other lending rates also go up and vice-versa. As a result, these changes affect the supply and demand of the money-in the market. When the market rates and lending rates are higher, the borrowing is discouraged and the credit becomes costly and there is contraction of credits. Similarly when bank rate decreases, the effect will be opposite. Thus, overall credit control can be manipulated by central bank by changing the bank rate.

What is meant by Bank Rate? How does it help in controlling the flow of credit in the economy?

Answer»

Bank Rate is the rate at which central bank rediscounts the first class bills of exchange of commercial banks. Simply speaking it is the rate of interest at which central bank lends money to the commercial banks. It is used as an instrument of the credit control policy of the central bank.

With the increase in bank rate, the market rates and other lending rates also go up and vice-versa. As a result, these changes affect the supply and demand of the money-in the market. When the market rates and lending rates are higher, the borrowing is discouraged and the credit becomes costly and there is contraction of credits. Similarly when bank rate decreases, the effect will be opposite. Thus, overall credit control can be manipulated by central bank by changing the bank rate.

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