Bank Rate

Meaning:

The bank rate is the rate at which the Reserve Bank of India (RBI) lends money to  commercial banks without requiring any collateral. This rate is important for controlling  money supply, inflation, and credit growth in the economy.

Example:

If the RBI sets the bank rate at 6.75%, a bank borrowing ₹100 crore will pay ₹6.75  crore in interest annually.

How to understand bank rate:

When the RBI increases the bank rate, borrowing becomes more expensive for banks, leading  to higher lending rates for customers.

Conversely, if the RBI lowers the bank rate, borrowing becomes cheaper, encouraging banks  to lend more money.

Importance of the bank rate:

It helps control inflation by adjusting the money flow in the economy.

It influences how banks lend money and supports overall economic growth by affecting credit  availability.