What is "bank rate"

n. (context economics English) The rate of interest that a central bank charges when it lends money to another bank

n. the discount rate fixed by a central bank

Bank rate, also referred to as the '''discount rate '''in American English, is the rate of interest which a central bank charges on the loans and advances to a commercial bank. The bank rate is known by a number of different terms depending on the country and has changed over time in some countries as the mechanism used to manage the rate have changed.

Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country.

The borrowing is commonly done via repos, where the repo rate is the rate at which the central bank lends short-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.

In contrast the reverse repo rate is the rate at which banks can park surplus funds with reserve bank. This is mostly done when there is surplus liquidity in the market as a high reverse repo rate will make it attractive to banks to park surplus funds with the central bank.