The discount rate refers to the interest rate used to change future payments into the present value, or refers to the interest rate used by the holder to request the bank to cash the undue bill, and the bank deducts the interest in advance.

The central bank adjusts the money supply and interest rate by changing the rediscount rate, thereby promoting economic expansion or contraction. When inflation needs to be controlled, the central bank increases the rediscount rate. In this way, commercial banks will reduce borrowings from the central bank, commercial banks' reserves will be reduced, and commercial banks' interest rates will be increased, thus causing the money supply to increase. reduce.

When the economy is depressed, banks will increase borrowings from the central bank, thereby increasing reserves, lowering interest rates, and expanding the money supply, thereby stabilizing the economy. But if banks already have sufficient reserves to lend, lowering the rediscount rate may be less effective in stimulating lending and investment. The central bank's rediscount rate determines the lower limit of commercial bank loan interest rates.

Extended information

Interest rate is an important leverage adjustment tool and professional name in economics, financing practices such as lending and leasing, and corporate financial management. Therefore, interest rates include long-term and short-term deposit rates, long-term and short-term loan rates, etc.; that is, the level or level of interest rates varies with different entities and different maturities.

The interest rate is often determined by the main agency for other parties or negotiated by the borrower and lender. For example, the state determines the interest rate policy level or the floating range of benchmark interest rates based on the national economic conditions. Banks determine the specific levels (numbers) of loans and deposits based on this range. For loans between enterprises and individuals, the lender or both parties agree on the interest rate. etc.

There are five types of interest rates of my country’s central bank, namely re-lending interest rate, rediscount interest rate, deposit reserve interest rate, excess deposit reserve interest rate and central bank bill interest rate.

The reduction will have little impact on the market: timely and dynamic adjustment, that is, fixed interest rates will no longer be implemented, but will be continuously adjusted according to market conditions. Based on the above analysis, the current rediscount interest rate should be reduced.

If it is lowered, it will release a signal to relax the money supply. For example, the yield on one-year central bank bills is around 1.9%. If the rediscount rate is lowered below 1.9%, commercial banks can raise funds through rediscounting to purchase central bank bills for arbitrage. This is tantamount to further enhancing the liquidity of inter-bank funds, which is contrary to the central bank's moderately tight monetary policy.

Therefore, we believe that the reduction in the rediscount rate will be small at first and will not have much impact on market funds. But in the long run, my country's interest rate marketization process has taken a big step forward. The adjustment of the rediscount rate is conducive to establishing a market-oriented interest rate formation mechanism, improving the central bank's interest rate system and improving the central bank's ability to guide market interest rates.

Baidu Encyclopedia—Discount Rate