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Definition of DISCOUNT RATE
: the interest on an annual basis deducted in advance on a loan
: the charge levied by a central bank for advances and rediscounts
First Known Use of DISCOUNT RATE
Interest rate charged by a central bank for loans of reserve funds to commercial banks and other financial intermediaries. The discount rate is one important indicator of the condition of monetary policy in an economy. Because raising or lowering the discount rate alters the rates that commercial banks charge on loans, adjustment of the discount rate is used as a tool to combat recession and inflation.