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Minimum lending rate

In 1974 bank rate was replaced by M.L.R. as the official minimum rate of interest charged by the Bank of England in discounting fine bills of exchange; it is also the minimum rate charged to commercial banks should they need to borrow money from the Bank of England. In 1981 M.L.R. ceased to be publicly announced each week, but as the base rate of the Bank of England it still has a major say in fixing interest rates generally, as those charged to the general public will necessarily be affected by the price of borrowing from the central bank. For this reason, it can be used as an instrument of government policy even if changes in the rate do not have the mandatory effect of changes in the old bank rate. There may be no obligation to follow the M.L.R., but the consequences of not doing so could be financially disastrous. Consequently, m watchful eye is kept on this rate by those bodies acting or dealing in the money market.

Although M.L.R. is no longer directly linked to the treasury bill rate the two rates tend to move in concert. It also plays a leading role in international monetary movements, for as it moves up or down (particularly where in so doing it underlines expectations of foreign investors) so money flows in or out of the country. Fluctuations in the M.L.R., especially long-term trends. thus have a very considerable effect on the U.K. balance of payments and the size of the country’s gold and foreign exchange reserves.

Reference: The Penguin Business Dictionary, 3rd edt.