Previous Year Question

Bank Rate is an official interest rate associated with the central bank. In India, it is determined by the Reserve Bank of India (RBI). Under Section 49 of the RBI Act, 1934, the RBI is required to publish from time to time the standard rate at which it is prepared to buy or re-discount bills of exchange or other commercial paper eligible under the Act.

Therefore, the option “official rate of interest charged by the central bank of the country” is the general examination-level description of the Bank Rate. It should not be confused with the lending rate charged by commercial banks to their customers or the interest charged by moneylenders. The Bank Rate is associated with the monetary and credit policy of the central bank. RBI's historical account also identifies Bank
Rate, reserve requirements and open market operations as monetary-policy instruments used to influence credit availability.

Important fact: The statutory definition of Bank Rate is more precise than simply calling it an “interest rate charged by the central bank”; the RBI Act defines it as the standard rate for buying or re-discounting eligible bills/commercial paper.