Bank Rate

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Bank rate refers to the interest rate at which central banks lend money to commercial banks in a country. It is also known as the discount rate or the base rate. The bank rate is set by the central bank of a country as a way to regulate the money supply and maintain the stability of the economy.

When the central bank lowers the bank rate, it becomes cheaper for commercial banks to borrow money from the central bank. This, in turn, makes it cheaper for commercial banks to lend money to businesses and consumers, which can increase borrowing and stimulate economic activity.

On the other hand, when the central bank raises the bank rate, it becomes more expensive for commercial banks to borrow money from the central bank. This can cause commercial banks to raise their own lending rates, making it more expensive for businesses and consumers to borrow money, which can slow down economic activity.

The bank rate also plays a role in controlling inflation. If the central bank believes that the economy is growing too quickly and inflation is becoming a concern, it may raise the bank rate to slow down borrowing and spending, which can help to reduce inflationary pressures.

Overall, the bank rate is an important tool used by central banks to regulate the economy and maintain stability. Changes in the bank rate can have a significant impact on borrowing and spending, and ultimately on the overall health of the economy.

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