gs1medium
The lowering of Bank Rate by the Reserve Bank of India leads to:
- A.More liquidity in the market
- B.Less liquidity in the market
- C.No change in the liquidity in the market
- D.Mobilization of more deposits by commercial banks
▶ Answer & Explanation
Correct answer: A. More liquidity in the market
When the Reserve Bank of India (RBI) lowers the Bank Rate, it becomes cheaper for commercial banks to borrow money from the central bank. This reduction in borrowing costs encourages banks to borrow more, thereby increasing the overall money supply and liquidity in the economy. Consequently, banks can lend more to businesses and individuals, stimulating economic activity.
Source: UPSC gs1 2011