Official bank rate
Encyclopedia
The official bank rate 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
. 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
.
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.http://www.keralabanking.com/html/what_is_a_repo_rate_.html. the repo rate in India is currently 8.5 % as of October 25,2011
) 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.
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
that the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
charges Banks for secured overnight lending
Interbank lending market
The interbank lending market is a market in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate...
. It is the British Government's key interest rate for enacting monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
. It is more analogous to the US discount rate
Discount rate
The discount rate can mean*an interest rate a central bank charges depository institutions that borrow reserves from it, for example for the use of the Federal Reserve's discount window....
than to the Federal funds rate
Federal funds rate
In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...
. The security for the lending can be any of a list of eligible securities (commonly Gilts
Gilts
Gilts are bonds issued by certain national governments. The term is of British origin, and originally referred to the debt securities issued by the Bank of England, which had a gilt edge. Hence, they are called gilt-edged securities, or gilts for short. The term is also sometimes used in Ireland...
) 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
Monetary Policy Committee
The Monetary Policy Committee is a committee of the Bank of England, which meets for two and a half days every month to decide the official interest rate in the United Kingdom . It is also responsible for directing other aspects of the government's monetary policy framework, such as quantitative...
and enacted by the Governor
Governor of the Bank of England
The Governor of the Bank of England is the most senior position in the Bank of England. It is nominally a civil service post, but the appointment tends to be from within the Bank, with the incumbent grooming his or her successor...
.
Repo rate in India
When banks have any shortage of funds, they can borrow it from Reserve Bank of IndiaReserve Bank of India
The Reserve Bank of India is the central banking institution of India and controls the monetary policy of the rupee as well as US$300.21 billion of currency reserves. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of...
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
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
. 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.http://www.keralabanking.com/html/what_is_a_repo_rate_.html. 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%. The name of this key interest rate has changed over the years. The current name "Official Bank Rate" was introduced in 2006 and replaced the previous title "Repo Rate" (repo is short for repurchase agreementRepurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
) 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.