BANK RATE INTEREST RATE

55.  BANK RATE
INTEREST RATE
1.      Meaning
It is the rate at which central bank (RBI) lends money to commercial banks by discounting bills of exchange.

2.      Purpose
It acts as a guide line to the banks for fixing interest rates. If bank rate increases, interest rate wills goes up, and vice-versa.

3.      Decided by
The bank rate is decided by the Central Bank. In April 2010, the bank rate was maintained at 6% p.a


It is the rate at which the banks accept deposits or lend money



Its purpose is to earn profit for the bank. The different between lending interest rate and deposit interest is the margin of profit for the banks.


It is decided by commercial banks, because RBI has deregulated interest rates, except on saving deposits.