Discount policy

Discount policy is policy taken by the central bank to increase and decrease the money circulation by raising or lowering bank rates. If the Central Bank raised bank rates, its aim to reduce the amount of money. With the high rates, people are expected to save their money in bank. Therefore, the amount of money will be reduced. Policy to raise bank rates is used to press inflation. Meanwhile, if the central bank lowers bank rates, its aim to increase the amount of money. With the low rates, people are expected to save their money in bank. Thus, the amount of money circulating in the society will increase. The decline in bank rates made by the Central Bank if the economy goes into a recession or if the economy is run into deflation.