Official bank rate


Official bank rate

The official bank rate (also called the Bank of England base rate[1] or BOEBR) is the interest rate that the Bank of England charges Banks for secured overnight lending. It is the British Government's key interest rate for enacting monetary policy.[2] It is more analogous to the US discount rate than to the Federal funds rate. The security for the lending can be any of a list of eligible securities (commonly Gilts) and are transacted as overnight repurchase agreements.

When an announcement of the change in interest rates is made this is the rate the Bank of England is changing. Changes are recommended by the Monetary Policy Committee and enacted by the Governor.

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Repo rate in India

When banks have any shortage of funds, they can borrow it from Reserve Bank of India or from other banks. The rate at which the RBI lends money to commercial banks is called repo rate, a short term for repurchase agreement. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.[1]. the repo rate in India is currently 8.5 % as of October 25,2011

History

The official bank rate has existed in various forms since 1694 and has ranged from 0.5% to 17%.[3] The name of this key interest rate has changed over the years. The current name "Official Bank Rate" was introduced in 2006[3] and replaced the previous title "Repo Rate" (repo is short for repurchase agreement) in 1997. Previously (between 1981 and 1997) the title was "Minimum Band 1 Dealing Rate" and prior to that the "Minimum Lending Rate". The rate at which banks park their money with Reserve Bank is called the repo rate; the Reserve Bank parks its money with other banks at the reverse repo rate.

See also

References


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