The bank rate is the rate at which the central bank gives out loans to commercial banks. This arises in situations when the commercial bank wants to keep its operations running. The RBI provides commercial banks with short-term loans, which will be helpful to them to continue their operations smoothly. The interest that the Reserve bank of India charges on these short-term loans is called bank rate. Bank rate affects how individuals can borrow money from commercial banks. The bank rate of a country must be maintained. When the policymakers decide they want to reduce the bank rate, it helps stimulate the economy.