The Bank Rate is the rate at which the Reserve Bank of India (RBI) rediscounts the Bills of Commercial banks. It is also known as the Discount Rate. The bank rate is an important tool used by the RBI to control the money supply and inflation in the economy. It is the rate at which the central bank lends money to commercial banks against their eligible securities.

Importance of Bank Rate

Bank rate plays an important role in the economy as it affects the cost of borrowing for commercial banks, which in turn affects the lending rates offered by them. Higher bank rates increase the cost of borrowing for commercial banks, which leads to an increase in lending rates. This, in turn, reduces the demand for credit and helps control inflation.

On the other hand, a lower bank rate reduces the cost of borrowing for commercial banks, which leads to a reduction in lending rates. This increases the demand for credit, which helps stimulate economic growth.

Conclusion

Thus, the bank rate is an important tool used by the RBI to control the money supply and inflation in the economy. It is the rate at which the central bank lends money to commercial banks against their eligible securities. The higher the bank rate, the higher the cost of borrowing for commercial banks, which leads to an increase in lending rates. Conversely, a lower bank rate leads to a reduction in lending rates, which increases the demand for credit and stimulates economic growth.