What is Bank Rate?

The minimum rate of interest, which a central bank charges (in India's case - Reserve Bank of India), while lending loans to domestic banks is called "Bank Rate". When a bank suffers fund deficiency, it can borrow money from RBI to continue services.

 

When Bank Rate is increased by the central bank, a commercial bank’s borrowing costs hikes, which reduce the supply of money in the market.
 

As RBI controls the money supply in the economy as well as in the banking sector, deciding the bank rate is usually done quarterly to control inflation and India's exchange rates as part of