Write short note on Bank Rate.
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Bank rate, also referred to as the discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The bank rate is known by a number of different terms depending on the country, and has changed over time in some countries as the mechanisms used to manage the rate have changed.
Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country.
The borrowing is commonly done via repos: the repo rate is the rate at which the central bank lends short-term money to the banks against securities. It is more applicable when there is a liquidity crunch in the market.
In contrast, the reverse repo rate is the rate at which banks can park surplus funds with the reserve bank. This is mostly done when there is surplus liquidity in the market.
Bank rate, also referred to as the discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The bank rate is known by a number of different terms depending on the country, and has changed over time in some countries as the mechanisms used to manage the rate have changed.
Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country.
The borrowing is commonly done via repos: the repo rate is the rate at which the central bank lends short-term money to the banks against securities. It is more applicable when there is a liquidity crunch in the market.
In contrast, the reverse repo rate is the rate at which banks can park surplus funds with the reserve bank. This is mostly done when there is surplus liquidity in the market.
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Note on Bank Rate is as follows:
- The process of lending money from nation central bank to other domestic banks depends on the the rate of interest, this is defined as bank rate.
- Economic activity can be affected adversely or positively by the central bank's managing method of bank rate. It also can affect he personal loan of customers.
- According to the last report from The Reserve Bank, 5.40% is the repo rate.
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