Bank rate

Bank rate
For the company, see Bankrate.

Bank rate, also referred to as the discount 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. Changes in the bank rate are often used by central banks to control the money supply.

Contents

Difference between bank rate and repo rate detail description

Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends shot-term money to the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market.

The reverse repo rate is the rate at which the banks park surplus funds with reserve bank, while the repo rate is the rate at which the banks borrow from the central bank. It is mostly done when there is surplus liquidity in the market.

Bank rate

The interest rate that is charged by a country’s central or federal bank on loans and advances to control money supply in the economy and the banking sector. This is typically done on a quarterly basis to control inflation and stabilize the country’s exchange rates. A fluctuation in bank rates triggers a ripple-effect as it impacts every sphere of a country’s economy. For instance, the prices in stock markets tend to react to interest rate changes. A change in bank rates affects customers as it influences prime interest rates for personal loans.

United Kingdom

In the UK bank rates are set by the Bank of England's Monetary Policy Committee. The key interest rate is called the official bank rate[1] which is the lowest rate at which the Bank acts as lender of last resort to the money markets.

Canada

In Canada, the bank rate is defined as the upper limit of the overnight rate band announced each month by the Bank of Canada, (making it the target overnight rate + 0.25%).[2]

BPLR (benchmark prime lending rate)

This is the rate at which a bank lends its money to its prime customers that is the minimum rate at which the bank gives loans to its prime customers

References

  1. ^ "CHANGES IN BANK RATE, MINIMUM LENDING RATE, MINIMUM BAND 1 DEALING RATE, REPO RATE AND OFFICIAL BANK RATE". http://www.bankofengland.co.uk/statistics/rates/baserate.pdf. 
  2. ^ Siklos, Pierre (2001). Money, Banking, and Financial Institutions: Canada in the Global Environment. Toronto: McGraw-Hill. pp. 50–51. ISBN 0-07-087158-2. 

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Look at other dictionaries:

  • bank rate — ➔ rate1 * * * bank rate UK US noun [C] BANKING, FINANCE ► the rate of interest that is set by a central bank, and which is the lowest rate at which it lends money to other banks. This rate affects the interest rates which are then charged to… …   Financial and business terms

  • bank rate — bank rates N COUNT The bank rate is the rate of interest at which a bank lends money, especially the minimum rate of interest that banks are allowed to charge, which is decided from time to time by the country s central bank. ...a sterling crisis …   English dictionary

  • bank rate — n the rate of ↑interest charged by banks lending money, decided by a country s main bank = ↑interest rate …   Dictionary of contemporary English

  • bank rate — n. a standard rate of discount set by a central bank or banks …   English World dictionary

  • bank rate — bank ,rate noun count the rate of interest that banks use to calculate how much interest to charge on money they lend to each other instead of to their customers …   Usage of the words and phrases in modern English

  • bank rate — noun the discount rate fixed by a central bank • Hypernyms: ↑discount rate, ↑discount, ↑bank discount * * * noun Etymology: bank (IV) : the discount rate fixed by a central bank (as by the Bank of England) …   Useful english dictionary

  • Bank Rate — The interest rate at which a nation s central bank lends money to domestic banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower …   Investment dictionary

  • bank rate — UK / US noun [countable] Word forms bank rate : singular bank rate plural bank rates the rate of interest that banks use to calculate how much interest to charge on money they lend to each other rather than to their customers See: base rate …   English dictionary

  • bank rate — rate of interest fixed by a bank, discount rate …   English contemporary dictionary

  • Bank Rate Monitor Index — An index of money market interest rates paid on deposits at 100 banks in the United States. The index is comprised of the average of interest rates paid on different types of consumer savings on deposit. Bank Rate Monitor Inc. compiles the Bank… …   Investment dictionary

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