UPSC Prelims 2011·GS1·economy·money and banking

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

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Last updated 23 May 2026, 3:31 pm IST
  1. AMore liquidity in the marketCorrect
  2. BLess liquidity in the market
  3. CNo change in the liquidity in the market
  4. DMobilization of more deposits by commercial banks

Explanation

The Bank Rate is the interest rate at which the Reserve Bank of India lends long term funds to commercial banks. When the RBI lowers the Bank Rate, the cost of borrowing for commercial banks decreases. This allows banks to reduce their own lending rates for businesses and consumers. As loans become cheaper, more people and companies borrow money, which increases the money supply circulating in the economy. This process results in more liquidity in the market. Therefore, option A is the correct answer.
economy: The lowering of Bank Rate by the Reserve Bank of India leads to

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