discount rate

discount rate
1. the rate of interest charged in discounting commercial paper.
2. the interest rate charged by Federal Reserve Banks on loans to their member banks, usually against government securities as collateral.
3. the rediscount rate.
[1925-30]

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Interest rate charged by a central bank for loans of reserve funds to commercial banks and other financial intermediaries.

The discount rate is one important indicator of the condition of monetary policy in an economy. Because raising or lowering the discount rate alters the rates that commercial banks charge on loans, adjustment of the discount rate is used as a tool to combat recession and inflation.

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also called  rediscount rate , or  bank rate 

      interest rate charged by a central bank for loans of reserve funds to commercial banks and other financial intermediaries. This charge originally was an actual discount (an interest charge held out from the amount loaned), but the rate is now a true interest charge, even though the term discount rate is still used.

      The discount rate serves as an important indicator of the condition of credit in an economy. Because raising or lowering the discount rate alters the banks' borrowing costs and hence the rates that they charge on loans, adjustment of the discount rate is considered a tool to combat recession or inflation. The discount rate also is used to deal with balance-of-payments deficits—that is, to regulate international movements of capital.

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Universalium. 2010.

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