The Bank Rate

The rate of interest at which the central bank is prepared to lend money to its domestic banking system. It is also known as the discount rate or interest rate on the economic news calendar. Central banks function as a lender of last resort. Commercial banks invest funds deposited with them by customers either in the form of loans given out to individuals and businesses, or in other investment vehicles, but are required to keep reserve funds to handle settlement of transactions. Occasionally, commercial banks may run out of such reserve funds. They can therefore obtain stop-gap loans from the central bank, repayable at a certain interest rate. This is what is known as the bank rate.

By |2018-09-04T14:12:39+00:00September 4th, 2018|0 Comments

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