||It has been suggested that Discount window be merged into this article. (Discuss) Proposed since August 2013.|
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.
The reverse repo rate is the rate at which banks can park surplus funds with reserve bank, while the repo rate is the rate at which the banks borrow from the central bank. It is mostly done when there is surplus liquidity in the market.
How the rate is determined and its impact on the economy
The interest rate that is charged by a country’s central or federal bank on loans and advances controls money supply in the economy and the banking sector. This is typically done on a quarterly basis to control inflation and to stabilize the country’s exchange rates. A fluctuation in bank rates triggers a ripple-effect as it impacts every sphere of a country’s economy. For instance, the prices in stock markets tend to react to interest rate changes. A change in bank rates affects customers as it influences prime interest rates for personal loan
INDIA : In India, Reserve Bank of India sets the Bank Rate.
In the eurozone the bank rate managed by the European Central Bank is called Standing Facilities, which are used to manage overnight liquidity. Qualifying counterparties can use the Standing Facilities to increase the amount of cash they have available for overnight settlements using the Marginal Lending Facility. Conversely, excess funds can be deposited within the European Central Bank System (ECBS) and earn interest using the Deposit facility.
In Brazil, the discount rate is called SELIC (Special System of Liquidation and Custody, translated). It is the mean term of the overnight rate, fixed by the Committee of Monetary Politics, a branch of the Central Bank of Brazil. There are some assets of the public debt that are harnessed to the SELIC: an increase in this rate provides more profit for its owner.
In Canada, the bank rate is defined as the upper limit of the overnight rate band, announced reviewed and modified if necessary eight times each year (a schedule implemented in November 2000) by the Bank of Canada, (making it the target overnight rate + 0.25%).
Bank rate in India is determined by Reserve Bank of India (RBI).It is the rate which at Reserve bank of India gives loan to commercial banks without keeping any collateral. Also RBI provides short term loans to its clients (keeping collateral). it's called as Repo Rate. RBI revises this rate periodicallly. However, there is no predetermined schedule. The repo rates are changed reactively depending on the economy. Like any other country, repo rates affect the money flow into the nation's economy and affect the inflation and commercial banks' lending or interest rate.
In the UK, bank rates are set by the Bank of England's Monetary Policy Committee. The key interest rate is called the official bank rate, which is the lowest rate at which the Bank acts as lender of last resort to the money markets.
- Official bank rate
- Official cash rate
- Overnight rate
- Federal funds rate
- Monetary policy
- Discount window
- Boyes, William; Melvin, Michael. Fundamentals of Economics (6th ed.). p. 329.
- In English, the Central Bank of Brazil information.
- "The Target for the Overnight Rate". bankofcanada.ca. Bank of Canada. Retrieved 10 February 2015.
- Siklos, Pierre (2001). Money, Banking, and Financial Institutions: Canada in the Global Environment. Toronto: McGraw-Hill. pp. 50–51. ISBN 0-07-087158-2.
- "Singapore’s Exchange Rate-Based Monetary Policy" (PDF). Monetary Authority of Singapore.
- "CHANGES IN BANK RATE, MINIMUM LENDING RATE, MINIMUM BAND 1 DEALING RATE, REPO RATE AND OFFICIAL BANK RATE" (PDF).
|Wikisource has the text of the 1911 Encyclopædia Britannica article Bank Rate.|