rediscount rate: meaning, definition, pronunciation and examples
C1/C2Formal, technical, journalistic (financial contexts)
Quick answer
What does “rediscount rate” mean?
The interest rate charged by a central bank when commercial banks or other financial institutions borrow from it by discounting eligible securities.
Audio
Pronunciation
Definition
Meaning and Definition
The interest rate charged by a central bank when commercial banks or other financial institutions borrow from it by discounting eligible securities.
A key monetary policy instrument used by central banks to control the money supply and influence liquidity in the banking system, often set higher than the standard policy rate to discourage routine borrowing.
Dialectal Variation
British vs American Usage
Differences
The term and concept are identical and used by both the Bank of England and the U.S. Federal Reserve. Differences are limited to minor phrasing or institutional names (e.g., 'the Bank of England's rediscount rate' vs. 'the Fed's rediscount rate').
Connotations
Identical in both varieties—strictly technical with connotations of central banking authority, monetary policy, and financial system stability.
Frequency
Equally rare in everyday speech and equally common in specialized financial and economic reporting in both regions.
Grammar
How to Use “rediscount rate” in a Sentence
The [central bank] set the rediscount rate at X%.[Banks] can access funds at the rediscount rate.An increase in the rediscount rate tightens credit.Vocabulary
Collocations
Examples
Examples of “rediscount rate” in a Sentence
verb
British English
- The central bank may choose to rediscount eligible treasury bills.
- Few institutions needed to rediscount paper at the punitive rate.
American English
- The Fed stands ready to rediscount short-term notes for member banks.
- If liquidity dries up, banks will rediscount more assets.
adjective
British English
- The rediscount facility was heavily used during the crisis.
- They faced rediscount charges on the borrowed amount.
American English
- The rediscount window activity is a key indicator of stress.
- Rediscount operations form a classic monetary tool.
Usage
Meaning in Context
Business
Used in high-level financial strategy discussions, banking reports, and analysis of central bank actions.
Academic
Found in economics and finance textbooks, papers on monetary policy transmission mechanisms.
Everyday
Virtually never used except in detailed news reports about central banking.
Technical
Core term in central banking operations, monetary economics, and financial market analysis.
Vocabulary
Synonyms of “rediscount rate”
Strong
Neutral
Weak
Vocabulary
Antonyms of “rediscount rate”
Watch out
Common Mistakes When Using “rediscount rate”
- Using 'rediscount rate' interchangeably with the general 'interest rate' or 'prime rate'.
- Pronouncing it as 're-dis-count' instead of 're-discount'.
- Confusing it with the 'repo rate' (related but different mechanism).
FAQ
Frequently Asked Questions
In modern central banking parlance, especially in the U.S., the terms are often used synonymously. Technically, 'rediscount rate' is more precise as it refers to the central bank discounting an instrument that a commercial bank has already discounted.
It is used exclusively by central banks (like the Federal Reserve, Bank of England, ECB) and the commercial banks or financial institutions that are eligible to borrow from them.
Indirectly. Changes in the rediscount rate influence overall credit conditions. If it rises, banks may lend less or at higher rates to businesses and consumers, potentially slowing economic activity.
It depends on the economic context. A high rate is a tool to fight inflation by making it costly for banks to access extra funds, thus reducing money supply. However, it can also slow economic growth. A low rate does the opposite, stimulating lending and economic activity.
The interest rate charged by a central bank when commercial banks or other financial institutions borrow from it by discounting eligible securities.
Rediscount rate is usually formal, technical, journalistic (financial contexts) in register.
Rediscount rate: in British English it is pronounced /ˌriːˈdɪskaʊnt ˌreɪt/, and in American English it is pronounced /ˈriˌdɪskaʊnt ˌreɪt/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “[to] tap the discount window (related concept)”
Learning
Memory Aids
Mnemonic
Think: RE-DISCOUNT. A bank first discounts a bill for a client, then RE-DISCOUNTs it at the central bank. The RATE for this second discount is the REDISCOUNT RATE.
Conceptual Metaphor
THE CENTRAL BANK AS THE LENDER OF LAST RESORT: The rediscount rate is the 'price of emergency liquidity' or the 'cost of a safety net' for commercial banks.
Practice
Quiz
What is the primary purpose of a rediscount rate?