Discount policy and discount rate

Discount policy explains the central bank's policy in setting the discount rate. Lowering it enables banks to access liquidity more cheaply. This should stimulate the economy through cheaper credit. An increase will curb economic activity. This monetary policy strategy was pursued by the Bundesbank. Since the monetary union, the now responsible European Central Bank (ECB) has renounced any discount policy.

Discount rate is an interest rate in the form of a discount on the nominal value at which a bank can sell "bills of exchange" at the central bank in order to receive liquidity in return for the "bills of exchange". The higher the discount rate, the less favorable the redemption is for the bank and vice versa.

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