**Bank Rate**

The bank rate is the rate at which the central bank of a country discounts the bills of commercial banks. It is an important tool used by the central bank to control the money supply and interest rates in the economy. The bank rate is also known as the discount rate or the rediscount rate.

**Explanation:**

The bank rate is the rate at which the central bank lends money to commercial banks against the collateral of government securities or bills of exchange. When commercial banks have a shortage of funds, they can borrow from the central bank at the bank rate. This helps in meeting their liquidity requirements and ensures the smooth functioning of the banking system.

The central bank uses the bank rate as a monetary policy tool to influence the money supply and interest rates in the economy. By changing the bank rate, the central bank can affect the cost of borrowing for commercial banks, which in turn affects the interest rates offered to customers.

When the central bank increases the bank rate:
1. **Impact on commercial banks:** Commercial banks will have to pay a higher interest rate when borrowing from the central bank. This increases their cost of funds and makes borrowing more expensive for them.
2. **Impact on customers:** Commercial banks will also increase their lending rates to customers to maintain their profitability. This leads to higher interest rates for loans and other credit facilities for customers.
3. **Impact on money supply:** Higher interest rates discourage borrowing and lending, which reduces the money supply in the economy. This helps in controlling inflation and stabilizing the economy.

When the central bank decreases the bank rate:
1. **Impact on commercial banks:** Commercial banks will have access to cheaper funds from the central bank. This lowers their cost of funds and makes borrowing more affordable for them.
2. **Impact on customers:** Commercial banks may lower their lending rates to customers, making loans and other credit facilities more affordable.
3. **Impact on money supply:** Lower interest rates encourage borrowing and lending, which increases the money supply in the economy. This stimulates economic growth and investment.

By adjusting the bank rate, the central bank can influence the cost of funds, interest rates, and money supply to achieve its monetary policy objectives such as price stability, economic growth, and financial stability. The bank rate is an important tool in the central bank's toolkit for managing the economy.