Bank Rate
Bank rate is the rate of interest charged by a central bank on the loans and advances that it extends to commercial banks and other financial institutions. It is also known as the discount rate, base rate, or repo rate. Bank rate is an important tool used by the central bank to control the money supply in the economy. By changing the bank rate, the central bank can influence the cost of borrowing and the availability of credit in the economy.
History of Bank Rate
The concept of bank rate was first introduced in the United Kingdom in the early 19th century. The Bank of England was the first central bank to use the bank rate as a tool to control the money supply in the economy. Since then, many other central banks around the world have adopted the use of the bank rate as a tool to influence the cost of borrowing and the availability of credit in the economy.
The bank rate is usually set by the central bank’s monetary policy committee. The bank rate is usually set at a level that is higher than the market rate of interest. This is done to encourage commercial banks and other financial institutions to borrow from the central bank, as they can get a higher rate of interest than what is available in the market.
Table of Comparisons
| Bank Rate | Market Rate |
|---|---|
| Set by Central Bank | Set by Market Forces |
| Higher than Market Rate | Set by Supply and Demand |
| Used to Control Money Supply | Used to Determine Interest Rates |
Summary
Bank rate is an important tool used by the central bank to control the money supply in the economy. By changing the bank rate, the central bank can influence the cost of borrowing and the availability of credit in the economy. The bank rate is usually set by the central bank’s monetary policy committee and is usually set at a level that is higher than the market rate of interest. For more information about bank rate, you can visit the websites of the central banks of various countries, such as the Bank of England, the Federal Reserve, and the European Central Bank.
See Also
- Interest Rate
- Monetary Policy
- Money Supply
- Credit Availability
- Repo Rate
- Discount Rate
- Base Rate
- Prime Rate
- Federal Funds Rate
- Open Market Operations
