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Bank Rate

Meaning:

The bank rate is the interest rate at which the Reserve Bank of India (RBI) lends  money to other banks. It helps control how much money is available in the economy.


Example:

If the bank rate is 6.75%, and a bank borrows ₹100 crore from the RBI, it will pay â‚¹6.75 crore as interest each year.


How to understand bank rate:

When the RBI raises the bank rate, borrowing money becomes more expensive for banks.
If the bank rate is lowered, banks can borrow money more easily and lend it to people.


Importance of the bank rate:

It helps control inflation by making borrowing more expensive or cheaper.
It influences how much money banks can lend to people and businesses.

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