The base rate of interest is the benchmark interest rate set by a country's central bank, such as the Bank of England or the Federal Reserve, which it charges commercial banks for loans

. This rate serves as a reference point for determining the interest rates that commercial banks charge consumers on loans and pay on savings accounts

. When the central bank adjusts the base rate, commercial banks typically follow by raising or lowering their own interest rates, affecting borrowing costs and returns on savings

. For example, an increase in the base rate makes borrowing more expensive and savings more rewarding, while a decrease encourages borrowing and spending but lowers returns on savings

. In the UK, this rate is often called the Bank Rate or Bank of England base rate, and as of May 2025, it stands at 4.5%

. In India, the Reserve Bank of India (RBI) sets the base rate, which currently ranges approximately between 7.25% and 8.80%, and banks must review and publish their base rates regularly to maintain transparency

. In summary, the base rate is a key monetary policy tool used by central banks to influence economic activity by controlling the cost of borrowing and the incentive to save