Bank Rate

Banking Awareness Study Material

Bank rate

Bank rate

• It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. It also signals the medium-term stance of monetary policy.


• Bank rate is the rate at which Central Bank lends funds to commercial banks.


• If bank rate increases:
  • Cost of borrowng from RBI increases.
  • So banks borrow less
  • Their credit giving ability decreases.
  • Banks also increase lending rates i.e. rate at which they lend to public.
  • This discourage businessmen from taking loans. This reduces volume of credit and money supply.
  
  
• A decrease in bank rates on the other hand will increase credit and money supply.