What is Bank Rate?

Bank Rate refers to the official interest rate at which RBI will provide loans to the banking system which includes commercial / cooperative banks, development banks etc. Such loans are given out either by direct lending or by rediscounting (buying back) the bills of commercial banks and treasury bills. Thus, bank rate is also known as discount rate. Bank rate is used as a signal by the RBI to the commercial banks on RBI’s thinking of what the interest rates should be.

Impact of Bank Rate

When RBI increases the bank rate, the cost of borrowing for banks rises and this credit volume gets reduced leading to decline in supply of money. Thus, increase in Bank rate reflects tightening of RBI monetary policy.

Difference between Bank Rate and Repo Rate

Bank Rate and Repo Rate seem to be similar terms because in both of them RBI lends to the banks. However, Repo Rate is a short-term measure and it refers to short-term loans and used for controlling the amount of money in the market. On the other hand, Bank Rate is a long-term measure and is governed by the long-term monetary policies of the RBI. In broader term, bank rate is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. RBI uses this tool to control the money supply.

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7 Comments

  1. Anonymous

    September 12, 2010 at 10:49 am

    wonderful

  2. ragolu manohar

    May 11, 2017 at 11:11 am

    thank you great explanation

  3. NEHA CHAUHAN

    May 31, 2017 at 6:38 pm

    reverse repo rate rate is 6%
    dont provide with wrong details

    • rajesh pawar

      January 14, 2018 at 8:55 pm

      Mdm this rate going to be change in every 2 months

  4. hemant singh

    November 8, 2017 at 11:02 pm

    Diff b/w bank rate nd crr?

  5. R2

    December 24, 2017 at 6:09 pm

    check on https://www.rbi.org.in/

  6. saima

    January 23, 2018 at 8:30 pm

    what are the previous % of all 6 rates can any one tell me please

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