Legal Definitions - rediscount rate

The rediscount rate is the interest rate at which a central bank lends money to other banks or financial institutions. It is also known as the discount rate.

For example, if a bank needs funds to meet its short-term obligations, it can borrow from the central bank at the rediscount rate. The bank can then use these funds to lend to its customers at a higher interest rate, earning a profit.

The rediscount rate is an important tool used by central banks to control the money supply in the economy. By increasing or decreasing the rediscount rate, the central bank can influence the amount of money that banks have available to lend to their customers.

Overall, the rediscount rate plays a crucial role in the functioning of the financial system and the economy as a whole.