Final answer:
The bank lending rate, or discount rate, is the rate at which the central bank lends to commercial banks. The base rate is influenced by central bank policy but is not decided by the central bank alone. Key monetary policy tools to affect this rate include open market operations and adjusting the discount rate.
Step-by-step explanation:
Central Bank Monetary Policy:
The bank lending rate is the rate at which the central bank lends to commercial banks. This rate is commonly referred to as the discount rate. The base rate is often mistaken for the bank lending rate, but it is not determined by the central bank directly; rather, it is influenced by the central bank's monetary policy tools. The central bank utilizes tools such as open market operations, reserve requirements, and discount rates to impact the money supply and influence interest rates within the economy.
Open market operations are the most frequently used method, involving the buying and selling of government bonds. Adjusting the discount rate is another key method; when the central bank changes this rate, it directly affects the cost for commercial banks to borrow money from the central bank, which in turn influences the money supply and market interest rates.