Bank Rate

AAA

DEFINITION of 'Bank Rate'

The interest rate at which a nation's central bank lends money to domestic banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired.

The bank rate can also refer to the interest rate which banks charge customers on loans.

INVESTOPEDIA EXPLAINS 'Bank Rate'

In the U.S., the bank rate is often referred to as the federal funds rate. The bank rate is set indirectly by the Federal Open Market Committee (FOMC) which buys or sells treasury securities to regulate the money supply. These actions serve to push the effective federal funds rate closer to the targeted rate. Regulation of the economy through management of the money supply is referred to as monetary policy.

RELATED TERMS
  1. Reserve Requirements

    Requirements regarding the amount of funds that banks must hold ...
  2. Wholesale Money

    Funds borrowed by corporations, in high amounts, through financial ...
  3. Central Bank

    The entity responsible for overseeing the monetary system for ...
  4. Open Market Operations - OMO

    The buying and selling of government securities in the open market ...
  5. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  3. Economics

    How does a high discount rate affect the economy?

    Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow money from the Federal Reserve.
  4. Economics

    No Exit: What Could Happen If the Eurozone Breaks Up?

    There is no exit strategy for nations in the eurozone or the EU because most members acknowledge that they are far better off together than apart.
  5. Economics

    In what instances is quantitative easing used?

    Discover when, how and why the Federal Reserve and other central banks turn to quantitative easing to stimulate economic activity.
  6. Economics

    How do economies of scale work with globalization?

    Discover how globalization can lead to unprecedented economies of scale for firms across the world, leading to higher global efficiency and productivity.
  7. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.
  8. Economics

    How does the Federal Reserve determine the discount rate?

    Learn about the several different kind of discount rates offered to banks and other depository institutions through the Federal Reserve's discount window.
  9. Trading Strategies

    How can retirees protect their wealth in a bear market?

    Look at some helpful hints about how to protect your retirement nest egg when the stock market is underperforming or the economy is in recession.
  10. Economics

    What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine the criticism of its accuracy.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center