Question

Define the term 'Bank Rate'.

Answer 1

ANSWER:-
Bank rate is the rate charged by the central bank for lending funds to commercial banks. Description: Bank rates influence lending rates of commercial banks.Base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.

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Answer 2

Answer:

It is cost of borrowing from central bank.

Explanation:

Central banks lend money to commercial banks at some rate of interest, its similar to any other loan concept. Commercial  bank has to return the principal amount to the central bank with the interest rate. This rate is known as Bank rate. Hence, it is cost of borrowing from central bank by commercial banks. This rate affects the credit rationing. For example- if there is excess demand or inflation in the economy, central bank  increases the bank rate, high bank rates will force the commercial banks to raise, which result in high rate of interests in commercial banks and thus demand of the loan will fall and inflation will also fall and vice versa. Bank rates are applicable for the long term and emergency.