[UPSC Prelims PYQ 2011] Lowering of Bank Rate by the RBI leads...

The lowering of Bank Rate by the Reserve Bank of India leads to

1. More liquidity in the market
2. Less liquidity in the market
3. No change in the liquidity in the market
4. Mobilisation of more deposits by commercial bank

Explanation

• A bank rate is the interest rate at which a nation’s central bank lends money to domestic banks. When the RBI lowers the Bank Rate, borrowing becomes cheaper for commercial banks. This encourages banks to borrow more from the RBI and lend more to businesses and consumers. As a result, more money flows into the economy, increasing liquidity.

Answer: (a) More liquidity in the market