The bank rate is the rate of interest at which BB re-discounts the first class bills of exchange from commercial banks. Whenever BB wants to reduce credit, the bank rate is raised and whenever the volume of bank credit is to be expanded the bank rate is lowered. This is because by change in the bank rate. BB seeks to influence the cost of bank credit. The efficacy of bank rate policy depends, to a greater extent, on its power to influence the market rates. There is no organized money market in our country and thereby the market rates seldom respond to bank rate changes. The absence of any kind of conventional relationship between the central bank and other components of the money market further adds to the ineffectiveness of the bank rate policy.