Question

Distinguish between the following:
Bank Rate and Rate of Interest.

Answer 1

1. Bank rate is the rate charged on the loans offered by the Central bank to the commercial banks without any collateral whereas Rate of interest is the rate charged on the loans offered by the commercial banks to the people with or without any collateral.

2. Bank rate is determined and set by the Central bank which remain fixed for every commercial bank whereas rate of interest in determined and set by the respective commercial bank and varies bank to bank.

3. Bank rate is a quantitative tool of credit control in the economy to control the situation of inflation and deflation whereas rate of interest is not a tool of credit control.