What is Bank Rate?

Ans: A Bank Rate is the rate of interest at which a country's central bank lends money to domestic/commercial banks in the form of relatively short-term loans.

Explanation: Bank Rate is the interest rate at which the Reserve Bank of India (RBI) lends money to domestic/commercial banks, usually in the form of relatively short-term loans. Higher bank rate will translate to higher lending rates by the banks. There is no agreement on repurchase that will be drawn up or agreed upon with no collateral as well. The RBI allows short-term loans with the presence of collateral. The interest rate is charged by a nation’s central financial authority that controls the money supply in the economy as well as the banking sector. This is usually done quarterly to balance inflation and control the nation’s exchange rates. So as mentioned before in India our central bank is the Reserve Bank of India. So the Reserve Bank of India determined the bank rate. The rate is changed from time to time but it does not mean that there is already a set schedule for it. The rate at which the repo rates are changed depends entirely on the prevalent economy. 

Key Points: 

• A bank rate is basically the rate at which the Reserve Bank of India (RBI) lends money to commercial banks without any security or collateral. 
• The Reserve Bank of India (RBI) is the authority in India to determine the Bank Rate. 
• The Bank Rate is applied to loans made by the central bank to commercial banks.
• Commercial banks are not required to keep any collateral as security when borrowing at Bank Rate.
• There is no repurchasing agreement and obligation to repay on a particular date.
• The interest rate is charged by a nation’s central financial authority that controls the money supply in the economy as well as the banking sector.