Write short notes on: 6. Bank Rate

Write short notes on:

6. Bank Rate

Answer: 

6. Bank rate refers to the rate of interest at which the Central Bank lends money to the commercial banks or the rate at which the Central Bank discounts the bills of the commercial banks. This rate is also called the rediscount rate. This instrument is a key in the hands of the RBI to control money supply. Increase in the bank rate will make the loans more expensive for the commercial banks and thereby, pressurise the banks to increase the rate of lending. The public capacity to take credit will gradually fall leading to a fall in the volume of credit demanded.

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