What happens when the central bank increases the bank rate?

Assessment: WAEC SSCE - Economics - 2019 (Objective) Subject: Economics

Question 1 Report

What happens when the central bank increases the bank rate?

Answer Details
Amount of borrowing decreases. When the central bank increases the bank rate, it becomes more expensive for commercial banks to borrow money from the central bank. As a result, commercial banks are likely to pass on this increase in cost to their customers by charging higher interest rates on loans. This makes borrowing more expensive for individuals and businesses, which can lead to a decrease in the amount of borrowing. The idea behind this is to control inflation and encourage saving.
Read lesson note on Money And Inflation (WAEC)
Read lesson note on Financial Institutions (WAEC)
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