What is Bank Rate?

Bank Rate is defined as the rate at which Central Bank gives loans to other domestic banks like commercial banks, cooperative banks, development banks etc. The loans are generally given on a short-term basis. It is the way the Central Bank manages the economic activity in the country. The Bank Rate, in turn, goes to influence lending rates of domestic banks.

Thus, lower Bank Rate can lower the cost of funds for borrowers and thus expand the economy while the higher rate is helpful in case of inflation as it puts essential curbs on liquidity.

 

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