Bank rate is a monetary policy tool of the RBI. Bank Rate (BR) is the rate at which the RBI rediscounts the first-class bills of exchange. Effectively, it is also the rate at which the central bank gives loans to the commercial banks. BR affects both the cost and availability of credit. It is through the Bank Rate that the RBI influences the overall interest rate in the economy. To counter inflation, the RBI raises BR and vice versa.
In the new environment, bank rate has lost significance and the repo has been emerged as the leading interest rate anchor.
