Discount Rate or discount in economics will have many meanings but in banking terms and this term is also used by the Fed, discount rate can be interpreted as the interest rate applied by the central bank to commercial banks and other financial institutions when they borrow money from central bank.
The main purpose of the discount rate applied by the central bank is to overcome financial constraints such as controlling inflation. Apart from that, the central bank also uses the discount rate to regulate the amount of money in circulation, manage state debt and set bond interest rates.
The main purpose of the discount rate applied by the central bank is to overcome financial constraints such as controlling inflation. Apart from that, the central bank also uses the discount rate to regulate the amount of money in circulation, manage state debt and set bond interest rates.
