What is bank rate?what are the effects of changes in bank rate?
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A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.
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Bank rate is the rate of interest at which a domestic or commercial bank is charged a loan by the central bank of a country. Whenever there is shortage of funds in a bank, it can borrow funds from the central bank based on the nation's monetary policy. The central bank offers a long - term fund to the bank in need.
A change in bank rate may positively or adversely affect a country's economy. It affects the customers as there will be a change in the interest rates of personal loans.
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