gs1medium
An increase in the Bank Rate generally indicates that the
- A.Market rate of interest is likely to fall
- B.Central Bank is no longer making loans to commercial banks
- C.Central Bank is following an easy money policy
- D.Central Bank is following a tight money policy
▶ Answer & Explanation
Correct answer: D. Central Bank is following a tight money policy
The Bank Rate is the rate at which the central bank lends money to commercial banks. When the central bank increases the Bank Rate, it becomes more expensive for commercial banks to borrow funds. This, in turn, leads to higher interest rates for consumers and businesses, thereby reducing the money supply and curbing inflation. This action signifies a move towards a contractionary or tight money policy.
Source: UPSC gs1 2013