ACCOMMODATION
13 October 2017 By PDSNETThe extension of credit by the Reserve Bank to commercial banks. The central bank acts as a banker to the commercial banks, lending them money as they need it through what is known as the "discount window". The discount window used to be an actual window in the Reserve Bank at which clerks from the commercial banks would go to draw physical cash. This "accommodation" was given at a rate known as the "repo rate" - which is still set today by the Monetary Policy Committee (MPC) every two months. The Reserve Bank can increase and decrease the liquidity in the economy by raising and lowering the repo rate. When COVID-19 began to impact the economy is March 2020, the Reserve Bank reduced the repo rate from 6,25% to 3,5% and then kept it there until November 2021. The purpose of this was to compensate for the impact of the business "lockdowns". Commercial banks normally charge about 3,5% above the repo rate (the mismatch factor) as their prime overdraft rate. After November 2021, the Reserve Bank has raised rates by 0,25% at each successive meeting to keep inflation under control. At their meeting of 23rd to 25th May 2023 the MPC increased the repo rate by 50 basis points to 8,25%. At their next meeting in July 2023 they kept rates unchanged.
Share this glossary term: