Discount rate is the interest rate banks charge on loans, which is an essential aspect of financial planning. It serves as a benchmark for other interest rates, such as those for mortgages and credit cards. Determining the discount rate involves considering a complex interplay of economic factors and market conditions.
The discount rate plays a critical role in managing inflation, regulating economic growth, and stabilizing financial markets. Historically, central banks have used the discount rate to combat inflation by making it more expensive to borrow money, thus slowing down spending and reducing demand.